Bloomberg News

Pena Nieto Pledges Mexican Oil Opening Calderon Found Elusive

November 30, 2011

Nov. 17 (Bloomberg) -- The leading contender to win Mexico’s presidency next year said he’ll stake his administration’s success on attracting private investment to the country’s oil industry and eventually pave the way for selling shares in Petroleos Mexicanos to the public.

Enrique Pena Nieto said during an interview at Bloomberg’s headquarters in New York that changing rules to open Mexico’s state oil company, known as Pemex, to more private investment “would be my signature issue.” He cited Brazil’s state- controlled Petroleo Brasileiro SA, which has publicly traded shares, as a potential model.

“We can do what Brazil did for its oil company, not at the beginning but later, if we open shares to the public,” he said yesterday. Mexico’s constitution limits ownership of oil to the state.

Pena Nieto, 45, likened his ability to deliver on the pledge to that of President Richard Nixon, who he said was the “only one” who could have pulled off the 1972 visit to Communist China that ended 25 years of isolation between the superpowers. The former governor of Mexico’s most populous state said his Institutional Revolutionary Party, which nationalized Mexico’s oil industry in 1938, has the support of unions, and he’ll win July’s election with a mandate for easing the state’s monopoly on oil that eluded outgoing President Felipe Calderon.

“The most well-suited party to do a reform like this is the PRI,” he said, referring to his party, which governed Mexico for 70 years until 2000. Calderon’s National Action Party “already tried and could not do it.”

Calderon’s Efforts

Calderon, 49, unsuccessfully exhorted Congress to follow the examples of Petroleo Brasileiro and Norway’s Statoil ASA as state-controlled companies that have sold shares, developed technology to produce oil in deep waters offshore and increased production through international exploration.

Pena Nieto said Mexico needs to revive its flagging oil industry and expand trade with the U.S. to bolster economic growth that has averaged 2 percent during the past 10 years, compared with 3.7 percent in Brazil. Output at Pemex, which provides about a third of government revenue, declined 21 percent from 2006 to 2010 as production slowed at maturing oil fields. Pemex is Latin America’s largest oil producer.

Bolstering growth by changing tax laws and increasing competition will be a top priority if he wins office, Pena Nieto said. The International Monetary Fund predicts that by 2016, the world’s 13th-largest economy will be overtaken by South Korea and Australia, countries with less than half of Mexico’s population.

‘Very Good Job’

Asked if he would re-appoint Agustin Carstens as the country’s central-bank governor, Pena Nieto said it is “too early” to make such a decision. He affirmed the importance of autonomy for the central bank and praised Carstens, 53, for the “very good job he has done” setting Mexico’s monetary policy.

The benchmark IPC index of 35 Mexican stocks has lost 4.8 percent this year, compared with a 17 percent slump for the MSCI Emerging Market Index. The peso is the worst performing currency in Latin America this year, weakening 9.6 percent compared with the U.S. dollar.

A Consulta Mitofsky poll last month showed Pena Nieto had 33 percent support from likely voters, 23 percentage points above his nearest competitor, Andres Manuel Lopez Obrador of the Party of the Democratic Revolution. The poll of 1,000 people had a margin of error of 3.1 percentage points.

Gang Crack-Down

He is winning support by pledging to reduce violence tied to the government’s battle against drug cartels, said Jorge Chabat, a political scientist at the Center for Economic Research and Teaching, a university in Mexico City. Since Calderon took office in 2006, more than 43,000 people have been killed as the government sent troops to fight cartels and sought funding from the U.S. to crack down on the gangs.

Mexico’s presidential hopeful said he would aim to reduce the role of the military in the fight against organized crime and said he wants to “at least” double the size of the country’s police force.

“Let’s take advantage of the learning curve in these years,” said Pena Nieto. He is calling for a gradual return of the army to the barracks because they were erroneously asked to “play a role as if they were police, which they are not.”

Violence from organized crime shaves 1 percentage point annually from growth in Mexico’s gross domestic product, according to government estimates. JPMorgan Chase said in June that the impact may be as much as 1.5 percent, according to a report in Excelsior newspaper.

Drug Violence

In the state of Mexico, which surrounds Mexico City on three sides, drug violence escalated during Pena Nieto’s tenure as governor between 2005 to September of this year, based on some estimates.

Drug-related killings rose to about 600 in 2010 from 100 in 2007 as cartels moved into poor, sprawling areas surrounding Mexico’s capital, a count by the Mexico City-based consulting firm Empra shows. Total homicides in the state grew at a slower rate, to about 2,600 from 2,500 in the same period, according to figures from the federal government’s National Public Security System.

Pena Nieto dismissed U.S. Republican presidential candidate Rick Perry’s suggestion to send American troops across the border to help fight drug cartels.

“He is out of his mind,” Pena Nieto said, adding that he wouldn’t accept the breach of his country’s sovereignty.

Pena Nieto still needs to formally win his party’s nomination to run for office. The parties have until February to pick their candidates.

Overcoming Reputation

His biggest challenge in winning the presidency may be overcoming the PRI’s reputation for links to drug trafficking and for corruption, Chabat said, spurred by incidents such as Standard & Poor’s decision in August to lower its rating for PRI-led Coahuila to BBB- from A+ after the state reported debt four times lower than the actual figure.

Pena Nieto said his party has no ties to drug lords, calling such accusations “nonsense” and “propaganda” from political rivals.

“The opposition is worried because they see the polls,” he said.

--With assistance from Jose Enrique Arrioja, Jonathan Levin, Jonathan Roeder, Crayton Harrison and Adriana Lopez Caraveo in Mexico City. Editors: Brendan Walsh, Melinda Grenier

To contact the reporters responsible for this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net Flavia Krause-Jackson in New York at fjackson@bloomberg.net

To contact the editors responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net Mark Silva at msilva34@bloomberg.net


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