Spanish-Argentine energy concern Repsol-YPF SA is expected to be awarded Mexico’s first multiple service contract (MSC) on Thursday, as the country takes its first major step toward allowing private investment in its upstream sector.

Petroleos Mexicanos (Pemex) would not confirm it, but according to Dow Jones, Repsol was the sole bidder for Reynosa-Monterrey, the first of seven blocks of gas reserves that Pemex is tendering for development in its prolific Burgos Basin. A source had told the news agency that Total SA and ExxonMobil Corp. had been expected to bid, but neither presented proposals by Wednesday’s deadline.

Pemex will award the remaining six MSCs over the next five weeks, and estimates total private investment for the blocks will fall between $6-$8 billion.

Repsol set up an office in Mexico in February to compete for the contracts, Dow Jones said. The company already holds a 24% stake in Mexico’s Gas Natural SDG SA, which operates several natural gas distribution networks across the country. Pemex, in turn, has a 5% stake in Repsol.

Pemex first suggested the MSCs in late 2001, and then began a campaign to encourage more foreign investment in its oil and gas sector (see Daily GPI, Jan. 4, 2002). The first MSCs were to be tendered last year, but a storm of criticism by nationalists and threats of lawsuits by President Vicente Fox’s opposition party delayed their implementation until this year (see Daily GPI, July 18; June 13, 2002). Under the MSC program the outside companies would not own or control the output, but they would in effect be general contractors and would share in the proceeds with Pemex.

The first MSC announcement coincides with a speech on Tuesday by the director of Pemex, who told an audience in Veracruz that Mexico’s oil and gas industry has to slowly encourage more private investment. Raul Munoz Leos noted that “the participation of the private sector is necessary in the production of hydrocarbons, because its investment resources, its experience and talent are indispensable for the national oil industry to achieve its development potential.”

Once the MSCs are in place — although they still face legal challenges — Munoz suggested for the first time in public that eventually, outside industry may be able to export oil and gas or use Pemex’s distribution network. The Pemex chief noted that many state oil and gas industries now successfully allow private capital, including Russia, Venezuela, China and Saudi Arabia.

“Thanks to private investment, China has displaced Mexico in proven natural gas and crude oil reserves,” he said. If Pemex had more flexibility, it could achieve a “different scale of operations,” and become more competitive and efficient.

However, Munoz admitted that if the private enterprise was instituted too quickly it would not work because the country and Pemex both lack “the experience that would be needed to handle a phase of full opening with the necessary effectiveness.”

For Pemex to be allowed to bring in private investors with full participation inside the country would require the support of the majority ruling party in Mexico — which now strongly opposes it. Pemex is allowed to participate in joint ventures outside Mexico, but is not allowed alliances within its upstream sector.

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