Mexican Senate prepares to vote on historic energy bill By Alexandra Alper and Dave Graham MEXICO CITY (Reuters) - Mexico's Senate on Tuesday debated a landmark energy overhaul bill at the center of President Enrique Pena Nieto's economic reform drive, after the country's two biggest political parties hammered out a draft presented over the weekend. The reform, backed by the ruling Institutional Revolutionary Party (PRI) and the opposition conservative National Action Party (PAN), would mark the biggest strategic shift since the world's No. 10 oil producer nationalized the sector in 1938. The reforms are designed to lure private oil companies to either operate independently in Mexico, or partner with state oil monopoly Pemex through production- and profit-sharing, service contracts and licenses. Pemex's crude production has slid by a quarter since hitting a peak of 3.4 million barrels per day in 2004, and export volumes have dropped by a third over the same period. They then pushed the bill to the upper house. As the Senate began debating the bill on Tuesday afternoon ahead of a vote, lawmakers from the leftist Party of the Democratic Revolution (PRD), which is fighting hard to stop the bill passing, held up signs reading "no to privatization." The debate is expected to extend well into the night. Lawmakers made some amendments to the draft bill on Tuesday, adding a paragraph that removes union members from the board of Pemex, a demand of the PAN, which argues that the union is a weight around the company's neck and breeds corruption. The content of the bill was a positive surprise for many in the oil industry, and the government hopes it will help stem the decade-long slide in crude oil output. The currency rallied on Monday to a 7-week high. The reform is a cornerstone of an economic program that Pena Nieto hopes will boost long-lagging growth in Latin America's No. It would allow private companies to operate the country's oil fields, and though it stops short of full-blown concessions, it goes much further than many analysts had expected. The bill is a big departure from the service contracts now on offer, in which companies are paid a fee and can recover costs. PRD lawmakers have said they hope to call for a binding referendum to overturn the energy bill. The lower house approved legislation on Tuesday setting out how the government has to carry out such referendums, but the measure must still pass the Senate. "This is an element of uncertainty that could impact investment decisions," said Alberto Ramos, an economist at Goldman Sachs in New York. Polls have shown a wide range of opinion on the issue. A survey published in June by the Mexico City-based CIDE university showed the 65 percent of Mexicans opposed foreign investment in the oil industry. Another poll by the newspaper Excelsior in August showed 63 percent backed Pena Nieto's plans to change the constitution to allow more private investment in the energy industry. Additional reporting by Adriana Barrera, Michael O'Boyle, David Alire Garcia and Ana Isabel Martinez Editing by Simon Gardner and Mohammad Zargham