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Mexico Looking to Attract Investments in Oil after Liberalization

By: Elena Toledo - @NenaToledo - Jul 25, 2016, 1:11 pm
México
México is looking to boost its revenue form energy, but not before legislators can find a better way to regulate the industry. (El País)

EspañolMexico is designing a fiscal model for new petroleum contracts that will allow it to attract millions of dollars worth of resources to help prop up stagnant oil and gas production, as well as to generate income for the state that could allow it to average at least 75 percent, according to a state legislator within the Institutional Revolutionary Party (PRI) on Friday.

The government announced in December that it would be making deep reforms to the energy sector, which opened the doors to local as well as foreign private investment in areas such as hydrocarbon.

Nevertheless, Congress still has to debate and approve a series of secondary laws to regulate activity. It hopes that the government will send an initiative regarding these laws in the next scheduled congressional session, which begins February and concludes on April 30.

These laws, among other things, will define the tax framework that will affect the various types of project contracts that were approved, which includes licenses, shared production and profit sharing.

“We can be thinking about how income regarding exploitation, rights, taxes, etc. of the Mexican state are ging to average 75, 80 percent, meaning that Mexico cannot lose to global competition,” President of the Senate Committee on Energy David Penchyna told Reuters.

But the politician said they are still analyzing different models and alternatives and each type of contract will have its own characteristics, so he wouldn’t give any concrete details about the rate of taxes, royalties or rights for each one.

 

Worldwide, the tax rate for net profits for exploration and extraction of hydrocarbons is around 70 percent, according to government officials.

According to the United States Department of Interior, the average fiscal burden in the U.S. for deep-water projects in the Golf of Mexico is approximatley 50 percent, while the average in Brazil is closer to 70 percent.

“The specifics of each contract bid will have to have a legal base … we need secondary legislation that is more detailed to protect those resources that generate the majority of the income of the state,” Senator Penchyna said.

Another officials said that while it’s true that secondary laws will define the tax framework of the contracts, the Secretary of Finance can also define it and, “will calibrate it depending on each bid and each of their geological, technical and economic conditions.”

Regarding the new legislation for defining the quantity of local inputs and goods in the energy sector, within the framework of the opening of the sector, Penchyna said it was one of the complex aspects that they are evaluating.

“I believe the rule should not be general. We are trying to think and imagine and establish a theme of national content for investment products. I think we need to make a smart decision so that the domestic industry has a guaranteed space,” he added.

The Mexican government expects the energy reforms to raise the crude production from the current 2.5 million barrels per day to 3.0 million bpd by 2018.

Source: El País

Elena Toledo Elena Toledo

Educator by trade, social-media apprentice, activist for a democratic Honduras, and free thinker. Follow her on Twitter @NenaToledo.