MEXICAN ELECTIONS - CANDIDATES PROMISE TO REDUCE

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
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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.

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GOVERNMENT OFFICIALS CRITICIZE AMLO'S PROPOSAL
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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

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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)

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CALDERON'S COUNTER-PROPOSAL
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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
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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