VZCZCXRO8455
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1526/01 0811803
ZNR UUUUU ZZH
R 221803Z MAR 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 9766
INFO RHEBAAA/DEPARTMENT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE

UNCLAS SECTION 01 OF 02 MEXICO 001526 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
FOR WHA/MEX, WHA/EPSC, AND EB/ESC 
ENERGY FOR SLADISLAW AND KDEUTSCH 
USDOC FOR ITA/MAC/NAFTA/ARUDMAN AND ITA/ENERGY DIVISION 
TREASURY FOR IA - JASPER HOEK 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ENRG MX
SUBJECT: MEXICO ENERGY: PRD DEPUTY ON PEMEX CORPORATE 
GOVERNANCE BILL 
 
REF: (A) MEXICO 1492; (B) MEXICO 1476 
 
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SUMMARY 
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¶1. (SBU) Francisco Carillo, the senior member of the Party 
of the Democratic Revolution (PRD), on the Chamber of 
Deputies' energy committee, told us March 16 that a Pemex 
corporate governance bill would likely pass before the end 
of April.  The three political parties have already agreed 
informally on changes to Pemex's budgeting process and 
management and procurement procedures, while gaps among the 
parties remain on composition of Pemex's board of directors 
and a proposed scheme to issue securities that entitle the 
bearer to a share of Pemex profits without title to 
underlying assets.  Carillo predicted that Congress would 
pass those measures on which all sides agreed and leave 
controversial topics for the next legislature.  Meanwhile, 
PRD legislators, with expert help, are trying to enrich 
presidential hopeful Andres Manuel Lopez Obrador's (AMLO) 
energy proposal, which has been somewhat difficult to pin 
down. 
 
 
---------------------------------- 
CONGRESS MAY PASS A LIMITED REFORM 
---------------------------------- 
 
¶2. (SBU) Econoff and Econ FSN met March 16 with Francisco 
Carrillo, Secretary of the Energy Committee of the Chamber 
of Deputies.  Carrillo noted a general consensus among the 
main political parties on the need to pass Pemex's corporate 
governance bill (ref A).  He hoped both houses would approve 
the bill before the end of April, at least on those issues 
were there is sufficient consensus: budget, technical 
operations, and management independence as well as an 
adjusted acquisition and purchases system.  Lawmakers would 
postpone more controversial issues, such as the issuance of 
quasi shares until the next legislature takes over. 
Carrillo said that there was a general perception in 
Congress that Pemex's fiscal reform was a very "timid" 
effort that will prevent the state-run company from 
guaranteeing sufficient investment.  Legislators will 
continue working to improve the way Pemex remits proceeds to 
the Mexican Government. 
 
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NO CONSENSUS ON PEMEX'S BOARD 
----------------------------- 
 
¶3. (SBU) Carrillo told us that there was no consensus yet on 
the composition of the board.  Carillo backed a proposal to 
modify the current eleven board members (six government and 
five union representatives) by adding "independent" members. 
Carrillo said he preferred using the word "experts" rather 
than "independent" to prevent misinterpretations (for 
example, that Pemex was becoming more like a private 
company).  He and other legislators suggest that the new 
board includes only five "experts" and only four government 
representatives along with the five union members. For 
Carrillo, Pemex requires a balanced board that would add to 
the expertise technical opinion of the independent members, 
the long-term vision of the government. 
 
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AGREEMENT ON PROCUREMENT 
------------------------ 
 
¶4. (SBU) There is consensus among legislators on the need to 
modify the Government's Works and Acquisitions Regulations 
or at least the chapters pertaining to Pemex and the Federal 
Electricity Commission.  The amendment would define a new 
competitive bidding process; encourage technology transfer; 
improve transparency; and allow Pemex to be more flexible in 
the way it awards bids.  Legislators will also seek to 
modify the current auditing process to base it on economic 
results rather than on procedures as it is currently done. 
 
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NEXT STEPS 
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MEXICO 00001526  002 OF 002 
 
 
¶5. (SBU) As a next phase, Mexico would seek to create a 
technical oil regulator similar to Norway's Petroleum 
Directorate and Brazil's National Petroleum Agency.  Carillo 
believed the regulator would be overseen by the Energy 
Secretary who would be responsible for defining long-term 
 
SIPDIS 
goals.  The other members of the board, which could be 
"independent," would have the flexibility to develop the 
strategies to achieve such objectives.  Carillo's position 
differs from Pemex which seeks a more independent regulator 
separate from the Energy Secretariat. 
 
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PRD'S FUTURE ENERGY PLANS 
------------------------- 
 
¶6. (SBU) Carrillo contradicted AMLO's earlier pronouncement 
that it would not be necessary to develop deep water 
reserves, but rather concentrate on developing shallow and 
onshore fields.  Drilling in deep water would be very 
important, he said, but experts did say that there were 
about 20 billion barrels of onshore and shallow-water 
reserves much easier to exploit.  For Carillo, Mexico did 
have a reserve crisis and he acknowledged that AMLO's 
current energy plan was still a "thesis," but that he 
planned to summon experts and businessmen in an energy forum 
to enrich AMLO's energy proposals.  The objective would be 
to have the Advisory Council - created to elaborate further 
on AMLO's platform by taking into consideration proposals 
from civil society (ref B) - take into consideration the 
energy forum's suggestions and include them in the overall 
strategy.  On natural gas supply, Carrillo believed that LNG 
re-gasification plants such as the Manzanillo facility 
currently under development were a "necessary illness," and 
thus AMLO would continue with these projects, despite his 
objective to reduce dependence on energy inputs.  He 
explained that Mexico needed to work on alternative energy 
sources, such as nuclear power, to cover growing demand. 
 
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COMMENT 
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¶7. (SBU) There is broad support in Congress from all three 
major parties to pass a new corporate governance bill for 
Pemex this session that helps to improve its productivity. 
A draft prepared by a group of Senators and Deputies will be 
presented to the energy committee of the Chamber of Deputies 
this week.  Its reception will indicate how close the 
parties are.  Congress' and the Executive's new strategy of 
elaborating the bill in coordination with Senators, Deputies 
and Pemex should yield benefits for the state-run company, 
leaving a good legacy for the coming administration. 
Despite this optimism, we continue to receive reports that 
considerable daylight remains between Pemex and Congress' 
positions on the board and on issuing quasi shares.  At 
least one source told us that Pemex insists on an all-or- 
nothing deal, and would force the government to scuttle the 
proposal this session if they do not get it.  End comment. 
KELLY