VZCZCXRO8240
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1515/01 0811444
ZNR UUUUU ZZH
R 221444Z MAR 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 9753
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE

UNCLAS SECTION 01 OF 02 MEXICO 001515 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC 
STATE PASS USAID FOR LAC:MARK CARRATO 
TREASURY FOR IA MEXICO DESK: JASPER HOEK 
COMMERCE FOR ITA/MAC/NAFTA: ANDREW RUDMAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV PINR MX
SUBJECT: MEXICAN ELECTIONS - CANDIDATES PROMISE TO REDUCE 
ENERGY RATES 
 
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SUMMARY 
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¶1. (SBU) Commemorating the 68th anniversary of Mexican 
Government's nationalization of oil company assets on March 
18th, candidates publicly discussed their energy plans. 
Andres Manuel Lopez Obrador's (AMLO) promise to reduce 
energy rates provoked criticism from analysts and GOM 
officials who questioned the feasibility of his proposals. 
Felipe Calderon presented a sketchy seven-point plan, and 
Roberto Madrazo preferred to play it safe by promoting the 
use of renewable energy sources. End summary. 
 
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AMLO'S ENERGY PLAN 
----------------- 
 
¶2. (SBU) In Minatitlan, Veracruz (a major center of Pemex 
operations), leading presidential candidate AMLO outlined 
his energy plan in ten proposals that he says would help 
reduce energy rates: 
 
-- Deal with the energy sectors as a whole (oil, gas and 
electricity).  Promote the integration of Pemex and the 
electricity industry. 
 
-- Rationalize the exploitation of crude oil and natural gas 
based on the criteria of sustainability and environmental 
protection. 
 
-- Maintain proven reserves stable, looking for a 
replacement rate of 100 percent year on year.  To accomplish 
this, about USD 1.4 million would be channeled to 
exploration annually. 
 
-- Make a priority the extraction of natural gas in 
Veracruz, Tabasco, and the Burgos Basin.  Exploit non- 
associated gas in the Campeche Sound. 
 
-- Reverse the trend of exporting crude oil and importing 
value added products through construction of three 
refineries with a processing capacity of 400,000 barrels 
daily.  Reduce imports of refined products in three years 
through a comprehensive petrochemical program 
 
-- Maintain the current oil production platform of 3.4 
million barrels daily and increase drillings to replace 
Cantarell's declining production. 
 
-- Strengthen the Mexican Petroleum Institute and 
appropriate more resources for research to reduce Mexico's 
current dependency on foreign technology. 
 
-- Eradicate corruption in state-run companies, especially 
in the assignment of contracts.  The needed USD 1.4 million 
will be obtained eliminating fuel robbery in Pemex' 
pipeline. Reduce administrative costs by adjusting the 
company's structure. 
 
-- Propose a new fiscal reform for Pemex setting a fixed tax 
rate that will decrease gradually to promote its development 
and finance its activities. 
 
-- Acknowledge Pidiregas financing schemes as public debt 
and not as an off-budget item.  (Note: two days earlier, 
AMLO said he would eliminate Pidiregas.) 
- Say "NO" to energy sector privatization.  Defend 
sovereignty and not surrender to pressures from abroad. 
 
--------------------------------------------- - 
GOVERNMENT OFFICIALS CRITICIZE AMLO'S PROPOSAL 
--------------------------------------------- - 
 
¶3. (SBU) President Fox criticized AMLO's proposal to reduce 
energy rates, noting that it would be a temporary measure 
that wouldn't solve Mexico's poverty problems.  Fox spoke 
against energy subsidies and encouraged more public and 
private investments in Pemex.  Insulting the President, AMLO 
responded that Fox had already had his opportunity to make a 
change and couldn't.  AMLO also challenged the Federal 
Electricity Commission's Director General, Alfredo Elias 
Ayub, after Elias said that it wasn't feasible to reduce 
power rates without risking CFE's finances.  Given the 
 
MEXICO 00001515  002 OF 002 
 
 
sector's current situation and current energy prices in the 
world, Elias explained that these rates would only decline 
if subsidies - which currently total USD 5.1 million - were 
increased.  (NOTE:  A week earlier, AMLO economic advisor 
Rogelio Ramirez de la O said Lopez Obrador plans to forgo 
oil drilling in deep water and focus on land and shallow- 
water deposits.  Ramirez Corzo, who has run Pemex since 
November 2004, described AMLO's intention to halt deep water 
production as short-sighted.  END NOTE) 
 
--------------------------- 
CALDERON'S COUNTER-PROPOSAL 
--------------------------- 
 
¶4. (SBU) Also in Veracruz, National Action Party (PAN) 
candidate Felipe Calderon announced seven proposals to 
stimulate the energy sector, including the construction of 
four (not three as promised by AMLO) refineries - without, 
he claimed, affecting Pemex's finances.  Calderon repeated 
that he supported private investment, but reiterated that he 
would not privatize Pemex.  He will establish a policy to 
replace 100 percent of oil reserves and promote access to 
new technology to increase exploration activities. Calderon 
committed to make Pemex's finances transparent, strengthen 
Pemex's fiscal regime, and promote oil extraction in 
marginal fields abandoned due to the lack of technology. 
 
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MADRAZO AVOIDS CONTROVERSY 
-------------------------- 
 
¶5. (SBU) Attempting to protect himself politically by 
avoiding controversies, Madrazo asserted that it was 
possible to reduce electricity fees through the use of 
renewable energy, such as solar and wind.  He said that 
there were already two projects planned in the states of 
Puebla and Oaxaca.  Another solution he proposed - though 
without detail - was to revamp Pemex and the Federal 
Electricity Commission through the modernization of obsolete 
technology. 
 
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COMMENT 
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¶6. (SBU) Of all the economic issues raised by the 
candidates, energy prices is one of the most relevant both 
to investors and ordinary Mexicans.  The issue certainly 
deserves greater discussion, though perhaps outside the 
heated environment of a presidential campaign.  The 
candidates' sketchy proposals failed again to offer a 
detailed strategy to address the sector's problems.  None 
provided detailed solutions to end or reduce Pemex's 
monopoly.  Aside from promises to lower Pemex's tax burdens, 
without a real commitment to promote a stronger fiscal 
regime for Pemex, oil revenues will continue to fund current 
expenses rather than badly needed investment. 
GARZA