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Mexico’s Leading Presidential Candidate Spews a Hornet’s Nest Over Energy Reform

A demand to halt the government energy reform in its tracks by the politician who leads opinion polls for Mexico's upcoming presidential election has whipped up a hornets' nest in the nation's politics.

President Enrique Pena Nieto’s administration has long promised to keep up the pace of reform with a series of auctions until the last day of its tenure. The election is July 1, with the inauguration to be held on December 1.

Opinion polls show that today Andres Manuel Lopez Obrador is the leader of three major candidates to succeed Pena Nieto. Lopez Obrador chose March 18, the anniversary of the nationalization of Mexico’s oil industry in 1938, to place a monkey wrench in Pena Nieto's works.

Lopez Obrador has long said that, if elected, he would review all the existing contacts from the oil and gas auctions launched since the 2013-14 reform. By itself, that would scarcely be a problem. All the contracts are duly documented by the National Hydrocarbons Commission, or CNH, on its web page.

However, at the Nationalization Day ceremony earlier this month, Lopez Obrador said he would contact lawyers to review the contracts. Any concerns about the contracts would have to be resolved by the courts, a process that could take years in Mexico.

And, if elected on July 1, he promised to ask for the documentation to be handed over for his scrutiny on July 2.

However, snapping at Lopez Obrador's political heels are many of his supporters, who don’t want energy reform to be “reformed,” but rather, abolished. Lopez Obrador’s gesture of defiance is much greater than that of his leading rival for the presidency, Ricardo Anaya, who heads an alliance of left and rightwing parties.

Anaya recently said if he were to become president, he would want Pena Nieto jailed for unconstitutional abuse of power.

The political crisis is heating up, according to George Baker, who heads Houston-based consultancy, Mexico Energy Intelligence. Pena Nieto, he noted, is the most unpopular Mexican president since opinion polls emerged at the end of last century.

Largely, Pena Nieto is unpopular because of perceived corruption and a surge in already serious crime, said Baker. The energy reform had been billed as the flagship of Pena Nieto's program to change Mexico radically for the better.

"The problem is that it has always been presented by numbers alone,” Baker said. “Forecasts of investments that would presumably make Mexico overwhelmingly prosperous and of production figures that were not realized.

“And all that contrasted with the poverty faced by very many people in a country whose dreams of prosperity have often been dashed by reality in the past."

In his Nationalization Days remarks, Lopez Obrador said new deepwater auctions should be allowed. However, leasing Mexico’s shallow water and land likely would be frozen, pending the study of the existing contracts. In addition, all upstream activities would be forbidden in the southeastern and Caribbean states of Yucatan and Quintana Roo, an area that covers Cancun and the Maya Riviera.

"The tourism industry has to be protected," Lopez Obrador said.

If elected, Lopez Obrador said halfway through his term he expects to halt all Mexican crude exports, currently running at about 1.1 million b/d. Reinforcing a policy that analysts have criticized severely on cost issues, he said that the nation's state-owned refineries would be revamped and two new ones added, probably by the private sector.

Turning on its head what supporters of market economics have long maintained, the candidate said gasoline should not be more expensive in Mexico than it is in the United States. "Even Guatemala has cheaper gasoline than Mexico," he claimed.

However, Lopez Obrador agrees on one point with supporters regarding "neo-liberal economics,” in regards to state-owned Petroleos Mexicanos (Pemex), which is said “is in crisis. Production is dwindling and hardly anyone is drilling."

Whoever heads Mexico’s government -- and it is too soon to think it will be Lopez Obrador -- undoubtedly will face a severe crisis in Pemex. Indeed, many analysts think that in its 80th year, the sovereign industry faces a battle for survival.

"Low oil prices have not helped,” said editor David Shields of the Energia a Debate magazine. "But what made matters worse was that in the first three years of the current administration, Pemex was plagued by very bad management decisions."

Spendthrift policies on acquisitions of shipyard, fertilizer plants and autonomous deepwater exploration were the hallmarks, Shields said. In addition, at least $1 billion a year was being lost to gasoline thieves, while the franchise holders of Pemex service stations left in droves.

"On top of that, the company's upstream assets were largely heading for exhaustion as were its industrial installations," Shields said.

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