Mexico leftists exit pact, raising hope for deeper energy reform

By Ana Isabel Martinez and Dave Graham MEXICO CITY (Reuters) - Mexico's main leftist party said on Thursday it had pulled out of a cross-party pact on economic reform, raising hopes that the government will agree to a more far-reaching plan to attract private investment for the oil industry. The ruling Institutional Revolutionary Party, or PRI, is hoping its energy reform will spur faster economic growth, and the departure of the Party of the Democratic Revolution (PRD) from the accord is likely to push the debate closer to a more business-friendly proposal backed by the center-right. Unveiling his plan to shake up the state-controlled oil and gas industry in August, President Enrique Pena Nieto proposed offering investors profit-sharing contracts to try and reverse a slump in crude output, which is down by a quarter since 2004. But the PRI has no majority in Congress and its natural ally on energy reform, the conservative National Action Party (PAN), has proposed a more radical opening of the oil sector, including concessions and production-sharing contracts. The PRD has rejected the PRI and the PAN proposals for reform, arguing that Mexico needs to give greater autonomy to state oil giant Pemex. PRD Chairman Jesus Zambrano said his party had been left out of the negotiating process on energy and would leave the pact definitively unless the situation changed. "We are out," Zambrano said after his party had already balked at the negotiations under way over an electoral reform that the PAN has made a prerequisite for its support on the energy bill. "If they don't correct this, there is no point." The exit of the PRD is likely to heighten opposition on the left to the energy revamp, though Mexico's peso currency extended gains following the party's announcement. The PRD's absence from the negotiating table could speed discussions in Congress on both electoral and energy reform. The energy bill is a cornerstone of a broader drive for change extending from telecoms to education that Pena Nieto hopes will improve the performance of the Mexican economy, which has long lagged that of other countries in the region. After falling short of a majority, Pena Nieto unveiled the so-called Pact for Mexico with leaders of the PRD and PAN shortly after taking office in December, and it has provided the basis for several key accords on economic reform. BROADER REFORM The left have promised to fight any moves by the government to hand over the country's oil to foreigners and Pena Nieto said on Thursday that his government was committed to retaining ownership of the oil. Still, senior officials in the PRI have signaled the party is willing to consider a broader energy reform incorporating more of what the PAN wants to see. That could include production-sharing contracts that will pose a bigger political challenge in the face of massive public protests the left has pledged to stage against the reform. Following the PRD announcement, lawmakers from both the PRI and the PAN said they were sure the energy reform would pass this year, combining elements of both parties' proposals. "This needs to be a negotiation where the positions of the PAN and the PRI move closer," said Javier Trevino, a senior PRI member of the energy committee in the lower house of Congress. This meant there would likely be scope for a deeper reform than the government put forward in August, he told Reuters. "I think there will be more options, so we can look at and analyze the subject of production-sharing," Trevino said. PAN lawmaker Mario Sanchez, who heads the lower house economics committee, said the PRD's move had only been a matter of time and would help forge consensus on the energy bill. "It's going to be much closer to what the PAN and the PRI are proposing. That's where the reform is going," Sanchez told Reuters. "I don't see any problems in it passing." Javier Lozano, a senior PAN senator, noted the PRI were on the PAN's side of the argument on energy even before the PRD pulled out of the pact. "Now it's even more so," he said. (Additional reporting by Miguel Gutierrez, Adriana Barrera, Michael O'Boyle and Tomas Sarmiento; Writing by Dave Graham; Editing by Sandra Maler and Bill Trott)