Mexico Shakes Up Oil Industry To Increase Tax Take

by Mike Godfrey, for LawAndTax-News.com, Washington

28 October 2008

The Mexican Senate has passed a major new energy reform package aimed at encouraging greater private involvement in the country’s struggling oil industry.

The drastic slide in oil production in recent years has had a severe impact on government revenues - state-owned Pemex accounts for 40% of all tax revenues alone. Many experts have suggested that Pemex will need the assistance of specialist foreign companies to tap all available reserves, and maximise Mexico’s output.

To this end it had been anticipated that the new energy reform bill would contain significant tax incentives to encourage foreign oil companies to invest in exploration and development, but critics of the bill say that much of this was stripped out or watered down prior to approval. The consensus is that the bill will not bring sufficient reform to encourage much-needed foreign investment.

There is equal opposition to the bill from another angle. Many Mexicans fiercely oppose the privatisation, to any degree, of the state-owned Pemex, or of any private involvement at all in exploiting Mexico’s remaining reserves.

The bill will now go to the lower house of Congress.

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