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Mexico aims to open oil industry to private investment

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Marco Ugarte/AP/File

(Read caption) A truck drives past a refinery in Salamanca, Mexico, 170 miles northwest of Mexico City. Mexican oil production has fallen 30 percent in the last eight years.

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Mexican President Enrique Pena Nieto unveiled plans this week to amend articles of the Constitution that prohibit private investment in the country's oil industry. The state company Pemex would remain in government hands, as would the oil reserves themselves, but the government would break the monopoly on production, in order to attract private investors.

It is not yet clear that the proposed reforms will pass. But the Mexican industry clearly needs help. Oil production has fallen 30 per cent in the last eight years. The country has impressive natural gas resources but is dependent upon imports. The pipeline system desperately needs to be modernized.

All this means that the electricity generation and distribution systems lack capacity to promote industrial expansion. The high price of electricity and energy costs in general are a drag on industrial output. (Related article: What's the Future for Your State Monopoly?)

According to government estimates, an annual investment of $20 billion in infrastructure and new production is required to start the modernization of the industry and its networks. 

The response in Canada to these proposals has been ambivalent. The Mexican ambassador to Canada has assured journalists that his country does not seek to compete for the U.S. market. On the contrary, he said to the Globe and Mail in Toronto, "I think this opens great possibilities for Canada not as competitors but as complementary economies. I think this offers enormous opportunities for the relationship between Canada and Mexico."

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