VZCZCXRO1162
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0589/01 0382246
ZNR UUUUU ZZH
R 072246Z FEB 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 5236
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHBR/AMEMBASSY BRASILIA 1421
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MEXICO 000589 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/ARUDMAN 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD 
DOL FOR ILAB 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ECON MX
SUBJECT: MEXICAN CONGRESS MEMBERS DISCUSS ENERGY REFORM 
 
 
Sensitive but unclassified, entire text. 
 
Summary 
------- 
 
¶1. (SBU) The Mexican Autonomous Technological Institute 
(ITAM) January 22 hosted an energy conference on January 22. 
The event drew over 100 people, including representatives 
from all three political parties in Congress, the Mexican 
Council on International Affairs (Comexi), academia and 
policy institutes, as well as the private sector.  Topics 
discussed included an overview of the Western Hemisphere 
energy situation, the relationship between energy and public 
finances in Mexico,and finally a discussion of prospects for 
reform among Members of the Mexican Congress  End Summary. 
 
Western Hemisphere Energy 
------------------------- 
 
¶2.  (SBU) The lead-off panel presented the Center for 
Strategic and International Studies (CSIS) book Energy 
Cooperation in the Western Hemisphere, edited by Dr. Sidney 
Weintraub. The book has chapters on the U.S., Canada, Mexico, 
Venezuela, Argentina, Peru, Brazil and Ecuador, Colombia, 
Bolivia and Trinidad and Tobago. It focuses on political, 
rather than technical obstacles to cooperation, within and 
among countries of North and South America. 
 
¶3.  (SBU) In that discussion, Milton Costa, author of the 
Brazil chapter (and President of Petrobras Mexico) was asked 
what makes Petrobras different from Pemex. He replied that 
because Brazil has little oil itself, Petrobras has always 
been searching for more oil, rather than "administering oil 
wealth" as Pemex has done since the discovery of Cantarell. 
He argued that this resource limitation made it easier to 
reach political consensus on investing in technology and 
exploration that has made Petrobras a world leader. However, 
he also said the process was very difficult and that key 
reforms were passed during a "window of opportunity" of 
legislative negotiations. 
 
Oil and Public Finance 
---------------------- 
 
¶4.  (SBU) In a Panel discussion on Oil and Public Finance, 
moderator, Journalist Macario Schettino opened with a 
chronology of Mexico's failed efforts to expand its tax base. 
 Mexican tax collection amounts to less than 11 percent of 
GDP, compared with close to 40 percent in Brazil; the 
discovery of Cantarell allowed successive Mexican governments 
to avoid fiscal reality and reform; and recent production 
declines should force government to finally take decisive 
action. 
 
¶5.  (SBU) Independent consultant Jorge Chavez Presa built on 
Schettino's basic argument by providing extensive public 
finance data. He maintained that oil has allowed Mexico to 
artificially declare a surplus when the federal government 
operating budget - taking into account only tax income - is 
actually in a huge deficit. Because the parastatal sector 
makes so much money, the finance ministry can simply 
manufacture a fiscal balance.  National Action Party (PAN) 
Senator Gustavo Madero followed Chavez Presa by stating that 
Mexico's lack of tax policy has increased its dependence on 
oil, and that this has exposed the country to a fiscal crisis 
when production falls off. 
 
¶6.  (SBU) Commentator Isaac Katz, an ITAM economics 
professor, reiterated the political point that oil resources 
had undermined any political incentive for reforming the 
fiscal regime, and that the huge oil bonanza has made states 
and municipalities increasingly dependent on federal revenue 
transfers. He argued that in the future, in the absence of 
fundamental reforms, Mexico must expect falling revenues 
(because of oil production decline) and increased 
expenditures (Pediregas or off-balance-sheet financing, 
pension liabilities, etc). Katz concluded that Mexico must 
pursue two measures: fiscal reform and private investment in 
Pemex. 
 
 
MEXICO 00000589  002 OF 002 
 
 
Legislators Views 
----------------- 
 
¶7.  (SBU) A Panel on Legislative Perspectives included three 
Senators from the Senate Energy Committee: Francisco 
Labastida,  Institutional Revolutionary Party (PRI) who is 
President of the Committee, Jorge Ocejo (PAN) and Arturo 
Nunez, Democratic Revolutionary Party (PRD). The panel also 
included Manuel Alonso Lizaola another PAN deputy. 
 
¶8.  (SBU) Ocejo's presentation reviewed regulatory challenges 
to reforming Pemex, and usefully included specific laws that 
should be amended. His basic proposal was "flexibility and 
autonomy" for Pemex. He also insisted on the political 
principle of pursuing small but cumulative gains, and to 
"avoid all-or-nothing proposals." Ocejo suggested that 
Congress should proceed step by step in areas where there is 
the potential for consensus, such as institutional autonomy, 
rather than trying to open up the oil sector all at once. 
 
¶9.  (SBU) Labastida reiterated the basic narrative that 
preceded and stated that the urgency of the problem required 
a speedy legislative response. Moderator David Shields 
prodded the PRI Senator by suggesting that the Pemex union 
was controlled by the PRI, and asked whether the union shared 
his sense of urgency for reform. Labastida responded that 
while the union included many PRI members, it was not PRI's 
property, and that union support for reform would depend on 
the nature of the reform. 
 
¶10.  (SBU) Nunez argued that Mexico's energy policy had long 
been subordinated to fiscal policy, and called for a "second 
oil expropriation," only this time from Hacienda. He also 
reiterated the earlier point that Mexico's energy problem 
cannot be resolved without fundamental tax reform. He 
specifically proposed legislative action to strengthen the 
Ministry of Energy vis-a-vis Ministry of Finance (Hacienda). 
He concluded that there was considerable agreement among the 
parties on the diagnosis of the problem, and that what 
remained was to agree on how to solve it. 
 
¶11.  (SBU) In the question period, one audience member 
complained that there was too much diagnosis and not enough 
real debate within Congress about substantive options. 
Labastida responded that the best way to proceed is through 
debate among Congress members, but not out in the open. He 
argued that only when some degree of agreement is reached 
through internal discussion should a proposal be put on the 
table in public. 
 
¶12.  (SBU) Former Senator Silvia Hernandez (PRI), discussed 
the need to build "alliances" around energy reform. She also 
urged the conference organizers to promote awareness-building 
on sustainability and fiscal issues related to the oil 
sector, in order to influence public opinion about reform. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
GARZA