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Mexico's new leader to reform oil sector

July 3, 2018

Newly elected president Andres Manuel Lopez Obrador has said that his team will review state-owned oil company PEMEX. Rating agencies have warned that his proposed changes could hurt the industry.

A handout picture provided by the Mexican state-run oil company Petroleos Mexicanos
Image: picture-alliance/dpa/Pemex

On the heels of a resounding victory, Mexico's new president Andres Manuel Lopez Obrador has pledged that his economic team will "study" excessive labor costs, corruption and investments at state-owned oil giant Petroleos Mexicanos (PEMEX).

The oil industry forms an integral part of Mexico's economy and PEMEX comprises roughly 16 percent of the state's revenue.

As international oil prices took a dive in 2014, Pemex slashed thousands of jobs. What followed was a landmark energy reform by outgoing President Enrique Pena Nieto to reopen the oil and gas sector to foreign investors.

His administration hoped reform would help lift production and boost the economy. But that has not been the case and firm has continued to suffer from profit losses.

On the campaign trail, Lopez Obrador often railed against his predecessor's energy reform and had vowed to review contracts issued to private energy firms for signs of corruption.

Read more: Mexico election: Manuel Lopez Obrador will fight back against Donald Trump, say expats

Uncertainty after the election

Rating agency Moody's said on Monday that Lopez Obrador's election would result in short-term market volatility and represented risks for the oil sector. Credit agency Finch also warned that the election would bring prolonged uncertainty over the future of the oil industry.

But the president-elect's senior finance official, Carlos Urzua, tempered fears by clarifying that the Lopez Obrador government was not planning on pursuing major legislative overhauls of the oil sector.

"We really aren't thinking about changing the Constitution or major laws," Urzua told Reuters news agency on Monday, insisting that his team's changes at PEMEX would mainly focus on cost-cutting.

But Moody's said that measures Lopez Obrador has floated, such as a reduction or freezing of fuel prices, the creation of new refineries and the revision of contracts between PEMEX and smaller companies, "would hurt PEMEX and the oil and gas industry, in the short and long term."

Read more: Between leaks and politics, negotiators are meeting to update NAFTA

Putting "the poor first"

In addition to hoping to revamp the oil sector, Lopez Obrador's economic plans include promises to reform Mexico's troubled public pension system.

The task may run into conflict with the president-elect's public spending plans. Lopez Obrador has vowed that "for the better of everyone, the poor come first," promising to help the least fortunate by increasing welfare benefits for old people and providing scholarships for needy students.

jcg/aw (EFE, Reuters, AFP, dpa)

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