Lopez Obrador Won't Revoke Oil Reform or Contracts, Urzua Says

(Bloomberg) -- The man leftist presidential candidate Andres Manuel Lopez Obrador would pick as Mexico’s finance minister says he wouldn’t seek to repeal a landmark energy reform that opened the country to private drilling, nor would he cancel contracts struck with oil producers.

"They will be completely respected," Carlos Urzua said in an interview in Mexico City this week.

The comments indicate differences in Lopez Obrador’s potential cabinet long before the election is even held in July. Lopez Obrador told Bloomberg nine months ago that he wanted a public consultation over the repeal of the energy law, while his preferred energy minister, Rocio Nahle, has been an outspoken critic of the reform, saying this month that it was designed to weaken state-owned oil producer Pemex and calling it a "grave error."

The mixed messages are a sign of the fine line Lopez Obrador must tread to retain his bedrock support on the left, while not alienating the investors he needs to maintain economic growth.

Asked why Lopez Obrador hasn’t been clearer about his intention to honor the energy overhaul, Urzua said that oil ownership in Mexico used to be as sacred as guns are for Americans. In other words, "when a politician speaks about the oil sector in Mexico, no matter who it is, he has to be very careful what he says.”

In the Lead

Lopez Obrador is toning down the more radical elements of his manifesto as he makes a third attempt to win the presidency. The policy seems to be working.

While in some surveys he’s tied for first place, in one by El Universal newspaper conducted recently by Buendia & Laredo, he gained 31 percent approval, 8 points more than second-place contender Ricardo Anaya from the National Action Party.

Urzua, who holds an economics PhD from the University of Wisconsin at Madison, handled Mexico City’s finances from 2000 to 2003, when Lopez Obrador was mayor. He has worked in academia ever since, and for decades prior, including at Princeton and Georgetown universities. He’s currently at the Tecnologico de Monterrey.

His economics are conventional. Urzua insists that he wouldn’t change the floating peso or Banxico’s inflation mandate, though he does say a dual mandate that includes either growth or employment “very probably makes sense.” He is also positive on the talks to rework the North American Free Trade Agreement, saying Mexican negotiators are doing a fine job.

U.S. companies shouldn’t be concerned about Lopez Obrador, says Urzua, who would seek to expand American investment in Mexico and vice versa. "But what they should know is that we will combat corruption no matter what," he said. "U.S. companies in general haven’t had problems with that. There have been some grave cases however with Spanish companies."

Anti-Corruption Drive

Urzua’s backing for the current oil policy is not unconditional. A Lopez Obrador administration could review and possibly revise the pace at which oil auctions are taking place, Urzua said. Moreover, Lopez Obrador wants to spend more on building refineries in order to lessen gasoline imports, he said.

While Urzua says that no oil contract will be revoked, because they were all awarded in transparent auctions, those from other sectors may suffer under a review for possible corruption. That could include contracts awarded for a $13 billion new airport in Mexico City, which Lopez Obrador has said he wants to replace with a less expensive project to build two new runways at a military base 30 miles away.

"All of the contracts signed for the new airport will obviously have to be reviewed," Urzua said. "Very probably projects of significant magnitude, where there wasn’t a transparent bidding process as there was with energy -- where you had auctions -- very probably those will have corruption problems."

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