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Mexico unveils historic energy adjustable handle reform to boost foreign investmentAdd to ...
Mexico’s plans to break a 75-year state monopoly on energy could boost flagging growth and double foreign investment, potentially providing the biggest leg-up to its economy since the North American Free Trade Agreement two decades ago.The government is finalizing proposals to lure private investors into the oil, gas and electricity industries in order to boost production and lower energy costs for manufacturers, which are up to twice as high as those paid by U.S. companies.More Related to this StoryFactboxMexico’s unwieldy energy sector braces for historic makeoverGulf of Mexico drilling rig partially collapses after catching fireBP ordered to pay $130-million to Gulf claims programTraders w racing equipment ork on the floor at the New York Stock Exchange June 20, 2013.REUTERSStocksVideo: Should investors really dump emerging markets?VideoVideo: BP ordered to pay settlement administrator $130-millionRetailVideo: Mexico bribery probe clouds Wal-MartThe plan is expected to be unveiled and sent to Congress this week. It is likely to include tweaking articles of the constitution that pr adjustable handle ohibit private ownership of Mexican oil.The level of access to private firms, including foreign oil majors like BP and Exxon Mobil, will be crucial to the reform’s success.A half-hearted effort could wreck high expectations that centrist President Enrique Pena Nieto has the will to apply shock therapy to an ailing energy industry and beyond to other moribund sectors of the economy.But a best-case scenario could add between 1 and 2 percentage points to potential growth, economists say, a vital prop for an economy expected to grow just 2-3 per cent this year while global demand for Mexican exports remains sluggish.In the decade after Mexico joined NAFTA in 1994, exports to the United States and Canada tripled and foreign direct investment quadrupled. Growth rates rose to 4.8 per cent or more in four of the first five years of NAFTA, although the impulse then faded.The energy overhaul is the cornerstone of a far-reaching reform package that Pena Nieto hopes will ramp up growth,[url=http://www.fieg.it/Scripts/salastampa_gailleria.asp]moncler uomo[/url], boost credit and formal job creation and modernize Mexico’s oil, gas and electricity industries.“We have a great opportunity to improve the economy, to generate more jobs and to generate competitiveness for Mexican industry through the energy reform,” said Finance Minister Luis Videgaray,[url=http://www.oilsandolives.com/Moncler_Kids.html]Moncler Kids[/url], who is leading the design of the proposal.There are three main options: to allow private companies the right to explore and extract at will with “concessions;” to grant them a s Street Bike Levers hare of oil produced – known as production sharing; or to allow them to share in oil sal motorcycle helmet sale e profits, so-called risk-sharing contracts.“They won’t call it privatization, but the sector will be opened,” said CIBC strategist John Welch. “The bare minimum is getting rid of the prohibition on risk-sharing contracts in Pemex and the same in the Federal Electricity Commission.”Mexico kicked foreign companies out of its oil industry in 1938; allowing them back in is an emotive issue for many Mexicans, including some in Pena Nieto’s own party. A radical push might not pass Congress,[url=http://www.dormgrow.com/Men_Moncler_Jackets.html]Men Moncler Jackets[/url], although the government argues that bold action is needed to save the oil industry.Mexico is a top crude exporter to the United States, but output has fallen by a quarter since hitting a peak of 3.4 million barrels per day in 2004. Private involvement would give the sector a much-needed injection of expertise and technology to tackle tricky deep water projects.Lawmakers say the government’s proposal will likely also include constitutional changes to allow more private sector investment in electricity generation.If Mexico’s existing state-run electricity monopoly is dismantled and market forces spark more competition and increased supply, experts say electricity costs could be halved.While households get subsidized power,[url=http://www.bowlingdelights.com/Canada_Goose_Jakke.html]Canada Goose Jakke[/url], costs for big business have more than doubled over the past decade. Large factories pay the equivalent of 13 cents (U.S.) per kilowatt hour compared to 6 cents in 2003. U.S. industry pays less than 7 cents.If the reform can bring gas and Racing Parts electricity costs in line with those of the United States, it could add 0.3 percentage points to potential growth,[url=http://www.nothingbuttruth.com/canadagoosejackets.html]canada goose jackets[/url], said Barclays economist Marco Oviedo.“With energy reform you should expect more availability of cheap natural gas and electr racing lever icity,” he said.Investment boostThe biggest potential gain,[url=http://www.vestadesign.co.nz/Moncler_Sale.html]Moncler Sale[/url], however, is in Foreign Direct Investment. Net annual inflows have averaged $20-billion in the past five years and oil, gas and power has received just $360-million since 2008.As a share of gross domestic pro billet mirrors duct, or GDP,[url=http://www.fieg.it/osservatorio_argiomenti_testi.asp]moncler sito ufficiale[/url], Mexico’s inflows are about a third of Brazil’s and a quarter of Colombia’s. Both those countries have partially privatized their energy sectors.BNP economist Nader Nazmi calc motorcycle performance parts ulates that the combination of increased public and private investment from reforms to the energy sector and Mexico’s tax system could boost the ratio of investment to GDP by 2 percentage points. Better energy supply will also encourage investment in factories and analysts such as CIBC’s Welch say FDI could hit $50-billion in 10 years time.“Even if you just focus on the investment side, it’s huge,” Nomura economist Benito Berber said of the outlook.Still, if Mexico fails to keep up reform momentum throughout Pena Nieto’s term, it could fall into the same trap as Brazil, where big reforms boosted the economy for several years but growth then stalled due to a lack of further progress.“It could be an initial impulse as inefficiencies are weeded out of the system. But then after that you lose the benefits, and you have to think about something else,[url=http://www.officefurniturehut.com/Canada_Goose_coats.html]Canada Goose coats[/url],” said Goldman Sachs economist Alberto Ramos.Amid a global oil boom,[url=http://www.myrtlewoodgallery.com/Men_Moncler_Jackets.html]Men Moncler Jackets[/url], the reform may need to offer concession-like conditions – even if they are not called concessions because of domestic political sensitivities – in order to attract significant investment from global oil firms.It will be uncertain just how big an opportunity Mexico will offer until the government unveils details such as royalty rates in a draft regulatory law which may not be presented until tax plans are being discussed later this year.“A lot of the benefits depend on whether it’s the full thing. Half measures won’t get the results,” said Frances Hudson, global thematic strategist at Standard Life Investments.Mexico will need to show substantial progress to have a hope of lifting its credit rating to the level of the most developed emerging markets, like Chile or Poland.Moody’s and Fitch rate Mexico just short of the coveted A grade, while Standard & Poor’s is one step further down at BBB. S&P says it will not even consider an upgrade until it is clear that the planned reform will not be watered down in Congress.“We need to see passage, not just a strong proposal,[url=http://www.everything-dallascowboys.com/Cheap_NFL-Jerseys.html]Cheap NFL Jerseys[/url],” S&P credit ratings analyst Lisa Schineller said.SecurityPriceChangeXOM-NExxon Mobil89.40-0.49-0.545%Add to watchlistBP-NBP PLC41.390.310.755%Add to watchlistBP-NXOM-NLive Discussion of BP on StockTwitsMore Discussion on BP-NLive Discussion of XOM on StockTwitsMore Discussion on XOM-NMore Related to this StoryAnadarko finds ‘potentially giant’ oil field in Gulf of MexicoEuropean companies face ‘choppy conditions’ in emerging marketsAmerica Movil makes $9.6-billion bid for rest of KPN
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