Apr 9, 1:51 AM EDT

Mexico Submits Oil Reform Proposal

By JESSICA BERNSTEIN-WAX
Associated Press Writer

MEXICO CITY (AP) -- Mexico's president on Tuesday sent an energy reform bill to the Senate aimed at allowing private contractors a greater role in helping the ailing state oil company boost declining production and build new refineries.

Felipe Calderon stressed that the bill would not privatize Petroleos Mexicanos, or Pemex, a volatile issue that has led the leftist opposition to threaten massive protests if the conservative government tries to sell off a company seen as a symbol of national sovereignty.

Calderon, who won a disputed 2006 presidential election by a hair's breadth, said the bill would give Pemex greater freedom to contract work out to private companies, manage its own revenues and even issue bonds that only Mexicans could buy.

"We must act now, because time, and oil, is running out on us," Calderon warned in a nationally televised address. Oil revenues account for about 40 percent of Mexico's federal budget.

The bill would also give Pemex more freedom to manage its revenues - the majority of which are transferred directly to the government - and instead reinvest it in production and exploration.

Calderon proposed giving Pemex "greater power to make decision, manage itself and contract work, in order to gain access to state-of-the-art technology." While he did not specify the new contracting procedures, analysts say private firms might get exploration work and be paid a bonus - but not a percentage cut - for any oil they find.

Calderon made a bow to the sensitivity of the oil industry, which was nationalized in 1938 and is a point of pride in Mexico.

"I want to make clear that oil is and will continue to be exclusively Mexican property. Pemex is not being privatized. Oil is a symbol of the nation's sovereignty," he said.

The leftist Democratic Revolution Party claims the proposal involves handing over the oil in the Gulf of Mexico to transnational companies.

Former leftist presidential candidate Andres Manuel Lopez Obrador, who has already threatened to order thousands of followers to block highways and airports to protest any proposal that even hints at privatization, said the plan could cause conflict.

"If they take the oil away from us, there is going to be an atmosphere of farce, of frustration, and we don't want to live amid confrontation, disagreement, and conflict," he said.

Calderon proposed "allowing Pemex to hire specialized firms to build and operate new refineries for Mexico." The proposal also includes a plan for Pemex to issue Mexican-only "Citizen Bonds" to give the countries residents a chance to share in Pemex's income.

Production is plunging at Cantarell, the country's biggest-yielding oil field.

The government has said Pemex needs help from outside firms since the company lacks the expertise and equipment to explore and drill deep-water reserves, particularly in the Gulf of Mexico, where 50 percent of its potential reserves lie.

While Mexico has drilled just six wells there in recent years, companies are busily extracting crude from the U.S. side of the maritime boundary. Some analysts and lawmakers worry the drilling could threaten Mexico's share of the oil.

Mexico's constitution has banned most outside involvement in the company. But the government has eased restrictions slightly in the past 15 years to contract with private firms.

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Associated Press writer Mark Stevenson contributed from Mexico City.

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