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Mexico's state-run oil company, Petroleos Mexicanos or Pemex, is in crisis. Its aging refineries can no longer meet demand in Mexico, and reserves are dropping so quickly that the world's sixth-largest oil producer could run out of oil within a decade. The president is proposing to reform the operation, but as NPR's Jason Beaubien reports from Mexico City, politics are getting in the way.

JASON BEAUBIEN: When President Felipe Calderon first put forward his Pemex reform proposal, leftist lawmakers took over both houses of Congress. They barricaded themselves at the podium of the lower house for two weeks and blasted the president's reform plan as the privatization of Pemex. Mexico's constitution bans foreign companies from investing in or profiting from the nation's oil. Calderon's proposal would allow Pemex to offer bonuses and other incentives to foreign companies to drill new wells, build new refineries and provide other services.

President FELIPE CALDERON (Mexico): (Spanish spoken)

BEAUBIEN: While Congress is considering the Pemex reform plan, the fate of Pemex is being discussed across the country. At a forum at UNAM, the Universidad Nacional Autonoma de Mexico, economist David Ibarra called the current state of Pemex a disaster. Ibarra says for decades, the government has stripped Pemex of the capital it needs to upgrade its infrastructure and search for new oil reserves. Instead, Pemex has served as a cash cow for the government, providing more than 40 percent of Mexico's national budget. And Ibarra says the national oil company desperately needs to be reformed.

Mr. DAVID IBARRA (Economist): The problem is what kind of reform, because so far, Pemex has been paying too much in taxes, so Pemex has no net worth right now.

BEAUBIEN: But the leftist Party of the Democratic Revolution, or PRD, has vowed to oppose any reform that gives international - particularly U.S. oil companies - a stake in Mexico's oil. PRD Senator Francisco Javier Castellon Fonseca says Calderon's reforms pose a threat to national security and sovereignty.

Senator FRANCISCO JAVIER CASTELLON FONSECA (PRD, Mexico): (Spanish spoken)

BEAUBIEN: It's fundamental that the nation, the government, the state, he says, maintain its presence and control over Mexico's oil.

And ordinary Mexicans have reason to be skeptical about private investors getting access to state enterprises. Mexican businessman Carlos Slim became the richest man in the world in 2007, in part by making billions off the privatization of the national phone company, Telmex. Calderon's party, the conservative National Action Party, or PAN, is fighting an uphill battle to win public support for changes in Mexico's oil monopoly.

(Soundbite of radio advertisement)

Unidentified Man: (Spanish spoken)

BEAUBIEN: In radio ads, Calderon's party says Pemex isn't being privatized, it's being strengthened. The president's plan would still bar direct foreign investment in oil exploration, but it would allow greater incentives to international firms to build refineries and drill new wells.

David Shields, an independent energy analyst in Mexico City, says Calderon's reform plan doesn't go far enough.

Mr. DAVID SHIELDS (Independent Energy Analyst): I think Pemex is in a situation of what I would call productive and operative collapse.

Shields points out that Pemex's production was down 8 percent from last year. Pemex currently is the third-largest supplier of oil to the U.S. - behind Saudi Arabia and Canada - but that might not continue. Mexican oil exports dropped 12 percent last year, and reserves are declining rapidly. Shields says Pemex doesn't have the resources to search for new deep-water fields in the Gulf. And without a change in the law, Pemex can't make partnerships with international oil companies that have experience in doing such deep-water drilling. Shields says Mexican oil production peaked at 3.4 million barrels a day three years ago.

Mr. SHIELDS: Now it's at 2.8 million barrels a day, and think it's going down to close to 2 million barrels a day, and then it will flatten out. But that is a rather dramatic drop.

BEAUBIEN: And it's especially dramatic for a country that relies on its oil to fund almost half its budget for roads, schools, hospitals and other infrastructure.

Jason Beaubien, NPR News, Mexico City.

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