Mexico & Nafta - March 2005

Roberto Madrazo, the leader of the largest party in congress, said on 6 March that the government had misunderstood his party's new stance on energy and fiscal reform. Madrazo heads the Partido Revolucionario Institucional (PRI), which concluded its XIX assembly on 4 March. The PRI amended its policy on energy and fiscal reform in the assembly: it reaffirmed that oil and electricity were strategic industries and should remain under state control but it did not rule out reform. The fact the PRI did not specifically rule out private sector involvement in the energy industry was seized on by the government, and some foreign commentators, as a major change in the PRI's stance.

Madrazo said that the changes did not mean that the party would support the government's (stalled) plan to open up both the oil and electricity industries to foreign investment. He said that both the state oil company, Petróleos Mexicanos, and the electricity company, the Comisión Federal de Electricidad, would remain under state control.

What the government, and particularly the interior minister, Santiago Creel, misunderstood is that the PRI's subtle change in stance is in preparation for what it hopes to be a successful presidential election campaign in 2006. What the XIX assembly decided was that Prií­sta legislators would be able to vote for a (PRI) fiscal reform and a (PRI) reform of the energy laws without having to go back to the party for guidance. The proposals that they will be free to back will not, however, be those of the current government.

Essentially, what the PRI hierarchy wants is to avoid having another assembly when there are specific proposals before it. The PRI knows that its membership is more populist than its politicians: President Ernesto Zedillo was badly bruised by an assembly during his mandate which stopped the party co-opting technocrats to run the country. That assembly ruled that all candidates for senior positions in the party or in government should have either won internal party elections or public elections. By getting the change in principle approved now, when there is no actual proposal to divide the party, Madrazo has got what is effectively a blank cheque.

The irony is that both the PRI and the PAN now, in principle, are agreed that reforms in both fiscal and energy policy are needed, but neither will support the other party's proposal. The PAN blocked President Zedillo's attempted reforms in 1999 in both areas. Even the leftwing Partido de la Revolución Democrática, which has ideological objections to both energy and fiscal reform, may be prepared to countenance some changes. When Cuauhtémoc Cárdenas, arguably the most statist-minded of PRD leaders, was mayor of Mexico City he investigated financing a private power station to provide the city with electricity at a lower price than that provided by another of the state electricity companies, Compañia de Luz y Fuerza. Some other perredistas are becoming equally pragmatic about reforms both on the fiscal and energy sides.

The exception to this realism is the mayor of Mexico City, Andrés Manuel López Obrador. He immediately declared that he was against any opening up of the energy industry to private (or foreign) companies. López Obrador is the frontrunner to become president of Mexico in 2006. Whether he could prevent the opening up of the energy industry to foreign companies is moot. One commentator points out that it is theoretically possible that the new congress (in an alliance between the PRI and the PAN assuming that no party has overall control) could agree to open up the industry before López Obrador takes office. The new congress meets on 1 September. The new president takes office on 1 December 2006. The elections, for both congress and the presidency, are on 2 July 2006. President Fox, whose relations with López Obrador are poor, would probably take great delight in signing into law a proposal his successor opposed.

What is clear is that the PRI's change of stance was unexpected by political and economic commentators. Most commentators had expected the XIX assembly to focus on two issues: the mechanism for picking the party's presidential candidate and working out a way of dealing with the party's dissident number two, Elba Esther Gordillo. 

The PRI's change of stance is, however, far from definitive. It does not, for example, call specifically for private sector investment in the energy industry. Nor does it concede, on the fiscal reform front, that VAT should be extended to food and medicine, which is the simplest (and some economists argue the fairest) way of increasing the government's revenues and diminishing the state's dependence on oil revenues. What the PRI has done is to overrule the boisterous hardliners, headed by senator Manuel Bartlett, who oppose any opening up of the oil industry. The PRI's change of stance shows that Bartlett and his cronies are no longer determining the policy and that more pragmatic prií­stas will drive policy. What these prií­stas want is a policy that wins votes.

Congress's current consideration of changes to the way Pemex is taxed will give some indication of the scale of the reforms the PRI may be prepared to contemplate in the next administration. What the XIX assembly probably shows is that those prií­sta senators who had been sitting on the fence or leaning against Bartlett's side of it have changed their positions and now recognise that some reforms are needed. The changes o the way Pemex is taxed should be sorted out by the end of the current session of congress at the end of April. 

Manlio Fabio Beltrones, one of the PRI's leaders in the lower chamber and the president of congress, said that the party was drawing up proposals to give Pemex more operational autonomy and to set up an independent regulator for the energy industry. Beltrones said that the PRI deputies in no way supported the government's plans for opening up the energy industry. He said that the PRI did not support [President] Zedillo's privatisation initiative nor [President] Fox's. What he said that the party was prepared to do was to modernise the system but it would not surrender the state's control of energy in Mexico. 

Beltrones's statement on 8 March was immediately contradicted by the PRI's leaders in both the lower chamber and the senate. Emilio Chuayffet, from the lower chamber and Enrique Jackson, from the senate, said that the PRI had no plans for any proposal. Beltrones is widely seen as Madrazo's man while Chuayffet and Jackson come from the wing of the party opposed to Madrazo. The PRI is still a long way from supporting the radical proposals being advanced by executives from Pemex, who want foreign companies to be allowed to develop the deep water oil fields of the Gulf of Mexico. The radicals' proposals are backed by the energy and finance ministries. 

• Privatisation: The Grupo Aeropuerto del Sureste (Asur) concluded its privatisation process which has taken four years by selling 11% of its shares through the stockmarket on 8 March. The sale, to 3,200 shareholders, raised M$1.1bn (US$100m). Four years ago the company started the process by selling shares to an operator (Inversiones Técnica Aeroportuarias, which holds 15%) and foreign investors who hold 68%. Big (or institutional) investors in Mexico hold 17% of the shares. The transport ministry and the state development bank, Nafin, will now try to sell 85% of the Grupo Aeroportuario del Pací­fico. The expect to sell between 15% and 30% of the shares to local investors. They expect the sale to be concluded by the third quarter of this year.