Mexican President Enrique Peña Nieto To Announce Monday Decision On Pemex; What Does This Mean For Oil Industry?

After months of debating, protesting and speculating, Mexico will finally know what will happen to Petróleos Mexicanos (Pemex), the largest oil company in the 10th-biggest oil-producing country in the world. President Enrique Peña Nieto will present his proposed energy reform on Monday, which might outline how the state-owned company could start moving toward privatization.

The controversy regarding the reform started in June, when Peña Nieto said in an interview with the Financial Times that he might open the way to constitutional reforms that would permit private investment in oil fields in Mexico. This was the first time the country heard about the government’s intentions, sparking a wave of protests and lobbying against the reform from workers and politicians alike.

The future, however, looks grim if action is not taken. Pemex, the seventh-biggest oil company in the world, has been in deep crisis for the past decade. Since 2004, its earnings have decreased 30 percent. In the first half of 2013, Pemex earned 3.4 percent less than in 2012, and 67 percent of it goes to the Ministry of Finance. According to the Economist, the company lost 360 billion pesos ($29 billion) in the last five years, and its debt has soared to $60 billion, not counting the $100 billion hole in its pension reserve.

The reform of Pemex has been largely debated by political parties in Mexico for years, but without reaching any agreement. Partido Acción Nacional (PAN) supports Peña Nieto’s decision to open the company to private investment; meanwhile, Partido de la Revolución Democrática (PRD), which has traditionally stood behind the government, has made it clear that it will oppose any change to the constitution regarding this issue.

For the Mexican people, the idea of privatizing Pemex goes beyond saving a sinking boat. Allowing foreign companies to tap into Mexico's oil reserves, estimated at 12.4 billion barrels and the sixth largest in the world, is seen as a threat to Mexico’s financial sovereignty. The expropriation of oil fields in 1938 was the strongest symbol of national identity for 70 years. It does not make it any easier that the fiercest supporter of nationalized oil for the last seven decades was Peña Nieto’s Partido Revolucionario Institucional, which is now trying to turn the tide in the opposite direction.