Mexico Talks with Rebels on Pipeline Blasts May Spur Investment

MEXICO CITY, May 1, 2008 (Dow Jones Newswires)

President Felipe Calderon's decision to talk with guerrillas linked to gas pipeline explosions could encourage foreign investment in Mexico at a time when the government is pushing to open the oil industry to private partnerships, experts said Wednesday.

Last year's pipeline attacks cost Mexico hundreds of millions of dollars and forced the shutdown of hundreds of businesses - marking the resurgence of a shadowy leftist group that had been largely dormant since waging bloody battles with government troops in the 1990s.

Negotiations could be the only way to prevent further guerrilla attacks, since it is nearly impossible to provide security for Mexico's nearly 7,000 miles of pipelines.

"The government wanting to negotiate is a prudent move and a solid move. But it's not a move out of strength, but out of weakness," said George Baker, a Houston, Texas-based analyst who follows Mexico's state-owned oil company, Pemex. "The prospect of a military defense of these pipelines is not something any government or any company wants to contemplate."

But negotiations could be a long way off.

Calderon's administration on Tuesday set various conditions for talks with the People's Revolutionary Army, known as the EPR, which pledged a cease-fire during negotiations.

The government refused a demand that authorities stop pursuing and investigating the rebels. It also insisted that talks not focus solely on the two EPR members whose disappearance last year provoked the pipeline attacks. The guerrillas accuse the state of secretly holding them, but the government denies it.

An Energy Ministry document cites the attacks as a reason to expand Mexico's pipeline system, building alternative routes in case supplies are disrupted. The plan is to create some 2,500 miles (4,000 kilometers) of new pipelines, but the government needs private investment for construction.

The attacks have been another turnoff for investors watching the fate of an energy reform bill, now before the Senate, which would remove bureaucratic obstacles to Pemex working with private partners. The debt-strapped company badly needs foreign expertise to boost sagging production.

The bill is bitterly opposed by leftist lawmakers who ended a 16-day blockade of Mexico's Congress last week, after agreeing to hold a national debate they hope will lead to the proposal's defeat.

"If I were an investor, I would say we ought to talk" to the rebels, said John Cogan, a Houston-based attorney for McDermott Will & Emery LLP, who focuses on the hydrocarbons industry. No matter how much security is provided for pipelines, "there are always going to be opportunities for guerrillas and various types to step in when nobody is watching."

Little is know about the Marxist group, which made a dramatic debut in 1996 when masked men and woman carrying automatic weapons appeared at a memorial service for peasants slain by police in the southern state of Guerrero. The rebels killed dozens of police and soldiers during subsequent battles, but gradually weakened.

MEXICO CITY, May 1, 2008 (Dow Jones Newswires)