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Mexican front-runner could open up oil sector to Canadian investors

The front-runner in Mexico's election on July 1 has pledged to reform the energy sector, a revolutionary move that could transform the country's economy, and open up opportunities for Canadian investors.

State ownership of Petroleos Mexicanos (Pemex) is actually written into Mexico's Constitution; to change this would be as politically sensitive as endorsing private health care is in Canada.

However, the time has come for Mexico to move beyond ideology, and face down nationalists and union members who continue to regard the oil company as a sacred cow.

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Enrique Pena Nieto, the presidential candidate of the Institutional Revolutionary Party (PRI), who has a 20-point lead over his opponents, is to be praised for his promise to allow private involvement in production, exploration and refining, with an eventual view to selling shares in the oil giant. (This is an about-face for the PRI, which had blocked the attempts of President Felipe Calderon, of the National Action Party, to reform Pemex.)

"There is a good chance that early in the next administration these reforms will come. Canadians should keep their eye on this," said energy analyst Joe Dukert, with the Washington-based Center for Strategic and International Studies. By expanding energy co-operation, Canada and Mexico could improve the efficiency, competitiveness and innovation of their economies, Mr. Dukert argues in the newly released book Canada and Mexico's Unfinished Agenda, published by Carleton University and the Centre for International Governance Innovation.

Brazil provides an instructive model. In the 1990s, Brazil allowed Petroleo Brasileiro to float shares and embark on joint ventures with companies to capitalize on their deepwater expertise. This helped Petrobras quadruple its production – without privatizing the company – and turned Brazil into an economic powerhouse. In contrast, Pemex revenues provide one-third of the Mexican government's budget; not enough resources go to development and exploration.

By allowing overseas investment and expertise to develop offshore resources, a lumbering state enterprise could become an efficient company. And Canada could be part of that transformation.

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