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Analysts doubt success of reform`s refining measure
Source: Bnamericas
Date: 04/14/2008 00:00
Mexican President Felipe Calderón`s move to open up the refining industry to the private sector could draw political fire, making it hard to pass through congress, industry analysts told BNamericas.
The proposal in Calderon`s energy reform bill would allow private firms to build, own and operate refineries to process state oil company Pemex`s crude. Pemex would retain control of crude and refined products.
The measure aims to free up Pemex resources for other business areas, especially upstream. Private-sector companies could build the refineries quicker than Pemex, lowering costs.
But Mexicans are nationalistic about their refining industry, Pemex expert David Shields said in an interview.
"It`s not politically very acceptable to have this wild idea of somebody coming in and building and operating a refinery for Pemex. If the idea is to strengthen Pemex, then Pemex should be operating the refineries," he said.
Others were surprised the reform bill called for refining services.
"I didn`t think they would go that far," PFC Energy analyst RoseAnne Franco said, adding the proposal could have a high political cost.
It is doubtful whether the PRI party would support the initiative, said Pamela Starr, an expert on Mexican politics.
Analysts also question whether companies will be willing to accept the terms of refining services contracts.
"There might not be that much interest on the part of the private companies," Franco said. "They would have to source their crude from Pemex, which is in declining production, and they`re going to have to sell to a heavily regulated market."
Companies would have to be bold the enter Mexico`s refining industry, according to Shields.
"I don`t think it is going to attract Shell, ExxonMobil," he said.
Texas-based refining company Valero Energy (NYSE: VLO) could be interested in the offer as could Chinese or Indian firms. In addition, the proposal could be something of an invitation to the Mexican private sector to get involved in the industry.
"But the bottom line is that I don`t think this is going to fly," Shields said of the reform initiative.
Another possibility would be to allow private companies to build and operate the refineries, eventually transferring ownership to Pemex, George Baker, director of Houston-based consultancy ENERGIA.COM said.
The model is used in the country`s power sector.

