Mexico

Results from the first phase of unofficial referendums on oil privatization are in.  More than 83% of citizens of Mexico City said no to the questions: “With the whole cycle of oil production under state auspices, do you agree that the private sector should play a role?” and “In general, are you in agreement with the proposed energy reforms in Congress?”

This is the first of three referendums, with the other two taking place on August 10th and 24th.  Although they do not carry legal weight, the first “no” will pose a serious annoyance to the Calderón administration’s proposed reforms to keep Pemex in the black.  Since 2005, “daily [Pemex oil] production has dropped more than 300,000 barrels per day, or some 10% of the total” (see Economist article here).

That said, Mexico’s economic policy is a paradox.  The country that has the world’s most free trade agreements (see post here) is also the same place that appears to vehemently oppose private sector participation to keep Pemex afloat, despite heavy losses in spite of all-time highs for oil prices.

Today, the Mayor of Mexico City and the Local Assembly have organized an unofficial referendum on oil reform. The referendum opens a new chapter on the impact of democracy on strategic public policy. Indeed, the referendum—a democratic institution—has the potential to stop or dramatically alter the progress made during the open debate—another democratic institution—over oil reform that took place during the last two months.

The debate over oil reform is the central part of an agreement between Mexico’s main political forces that took place in early May 2008. According to the agreement, the Senate would organize a series of debates over different aspects of the oil industry in Mexico. More than a hundred and fifty intellectuals, high-ranking officials, members of congress, and scientists, among other leaders of Mexican society, discussed potential solutions to the many problems of the aging Mexican oil industry. The series of debates ended in July 22nd.

The debate has proven to be a fantastic exercise on democratic principles. Indeed, the debate brought together opposing political forces, ideas, and positions in a forum of tranquility and democratic discussion. In spite of this, another democratic device, that is, a referendum, could threaten the progress made in the debate.

The government of Mexico City has organized a referendum on the involvement of private companies in the oil industry and the approval of the initiatives produced during the debates. Depending on the votes, this could seriously halt the initiatives that the oil industry requires to survive in the following decades (high oil prices are not a sufficient condition for the long-term success of the industry). Although the results of the vote are not binding, the political tide generated by them might put pressure on the implementation and structure of the initiatives presented by the debaters.

However, the referendum might have the opposite effect. If voters decide that they support foreign involvement in the Mexican oil industry, and that they approve the initiatives produced during the debate; then the industry might experience changes in a short period of time. This is unlikely to happen (although voters can sometimes give some surprises). Indeed, the perceived role of the industry on national sovereignty, the rhetoric of the opposition forces, the conservatism of the ruling coalition, and the particular phrasing of the questions in the referendum, are not likely to produce support towards progressive oil reform.

While oil prices continue to rise, Mexico is debating how to maximize oil profits and modernize its aging oil industry. The oil industry, nationalized in 1938, is one of the pillars of the Mexican economy and an icon in Mexican history. In spite of this, the industry has experienced operative, technological, and financial problems that have placed Mexico, an oil-rich country, in a position of energy dependence. The state-run company, Mexican Petroleum (PEMEX), requires significant restructuring. The debate resides on how to do so.

The prelude to the debate started in early April, when President Felipe Calderón presented a bill that was considered a major reform to the Mexican oil industry. Two days after the bill was presented, opposition legislators closed the podiums in both the Senate and the Chamber of Deputies. Indeed, the initiative presented by the executive branch generated much controversy and the closure of Congress caused strong reactions that resulted in a political crisis. Nevertheless, major political actors—the presidents of the parties, leaders of opposition groups, key legislators, and high-ranking public officials—agreed to a process of deliberation through a democratic and inclusive debate.

The Senate is now hosting a series of debates that started on May 13th and that will last 71 days. During these debates, the most influential political actors in the country will present their positions to Congress—the institution in charge of actually making the necessary changes, including Constitutional reforms. They will be joined by experts, academics, and other leaders of Mexican society.

The results of the debate must be closely followed. Indeed, Mexico is one of the world’s major suppliers of oil and several countries, including the United States, might have something to gain— or lose—from any reform to the Mexican oil industry.