Now, after Enrique Pena Nieto of the Institutional Revolutionary Party (PRI) won the July 1 presidential election, industry leaders see a chance to push for more financial autonomy and a lower tax burden for the company.

Reforms to make Pemex more independent and remedy its lopsided balance sheet have wide backing across the political spectrum and could be easier to achieve before other, bolder changes Pena Nieto promised during his campaign.

The PRI has floated the idea of changing the constitution to allow more private investment in the industry, an about-face for the party that in opposition blocked broad energy reform by President Felipe Calderon’s National Action Party (PAN).

Pressure for reform of Pemex has built steadily, stoked by fears that the world’s No.7 oil producer could become a net importer of crude within a decade if it does not rapidly find new discoveries to replace a decline in production.

Even as the company tries to turn around the 25 percent drop in oil output seen since 2004, it is spending less.

Exploration and production investment fell by nearly 10 percent last year compared to 2010. The number of exploration wells dropped 15.4 percent and the number of wells in development fell by more than a fifth.

Pena Nieto talked of using Brazil’s Petrobras as a model to make Pemex more productive and there is growing belief inside his party that the Mexican oil giant needs more freedom.

“Pemex needs an internal reform to turn it into a public company like the ones that exist around the world. Public companies act like companies, not government agencies,” said Francisco Labastida, a PRI Senator and former energy minister. “Petrobras is not included in the government budget.”

But after holding a massive lead in opinion polls before the election, Pena Nieto stumbled at the finish and the PRI fell short of a majority in both houses of Congress.

Adding to his woes, the election victory is being challenged by a group of leftist parties who accuse the PRI of vote buying and using illicit funds to run his campaign.

Constitutional changes require a two thirds majority in Congress, so smaller steps to give Pemex more independence and loosen its fetters to the state have become a likelier bet.

CHAINED

Pemex doles out more than a dozen taxes and duties to fill government coffers, funding a third of the federal budget. Last year, Pemex earned 785 billion Mexican pesos ($59.53 billion) – before paying 876 billion pesos in taxes.

Without oil, Mexico would need to raise income tax by 91 percent or boost value-added tax (VAT) by almost 120 percent to make up for the loss in revenues, estimates Carlos Elizondo, a researcher at Mexico’s CIDE think tank.

Currently, Pemex can only deduct a small amount of costs from its taxes and operates mostly on debt, which means current liabilities represent around 15 percent of the company’s assets.

With the energy industry nationalized more than 70 years ago, Pemex cannot list reserves on its books since they are officially property of the nation, hurting the bottom line.

“We have to remove the chains that limit Pemex’s budgetary freedom,” said Fluvio Ruiz, a member of Pemex’s board. “We have to adjust the tax system to remove the limits on deductions.”

Ruiz said more oil income should be invested back into exploration in production.

There are signs Pena Nieto’s team could try to alleviate Pemex’s tax burden first to lay the groundwork for more comprehensive overhauls down the line.

“The energy reform would be presented as part of a package of economic reforms, which will also include tax reform. You can’t talk about deeper energy reform without fiscal changes,” said Francisco Guzman, a top adviser to Pena Nieto.

The PAN would be Pena Nieto’s natural allies on oil reform, but they have been drawn into the dispute over the election, this week joining forces with leftist runner-up Andres Manuel Lopez Obrador to accuse the PRI of money laundering in the campaign.

The PAN’s stance may complicate coalition-building in the next Congress, which convenes on September 1, making the PRI more reliant on smaller parties for a simple majority to broker limited structural and fiscal changes to Pemex.

If he tries to open up the oil firm – a near-sacred symbol of Mexican independence since its creation in 1938 – to more foreign investment, Pena Nieto could face strong opposition from his leftist adversary Lopez Obrador, a master of mobilizing huge street protests behind popular causes.

So Pena Nieto will likely tread carefully at the start of his term, which will be the first PRI administration since the party was ousted by the PAN in 2000 after 71 years in power.

Energy reforms finally passed in 2008 – watered-down by the PRI and leftist parties – created modest performance-based oil drilling contracts for private companies, which have already been used to auction off dozens of mature oil fields.

One option for Pena Nieto’s government would be to turn to the existing 2008 contracts to exploit the country’s vast, unexplored shale gas resources in northern Mexico.

“We have to make a bet on shale gas and shale oil and find a way for Pemex and private companies to tap it,” said Manlio Fabio Beltrones, a key PRI powerbroker in Congress.

Pemex’s natural gas output fell 6.1 percent in 2011 and Mexico is importing more to meet rising demand for the cheaper fuel.

Mexico has the world’s fourth-largest reserve of shale gas, according to the U.S. Energy Information Administration, but Pemex has only drilled a handful of wells so far.

LONG-TERM GOAL

Following in the footsteps of Brazil’s Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz) is still the long-term goal for Pemex’s management.

“To turn Pemex into an autonomous organization would mean quantum leaps in how we operate,” Pemex Chief Executive Juan Jose Suarez said this month, saying the company could be given independence like Mexico’s Central Bank.

Though Petrobras has faced criticism over government intervention, it has for years been considered a model able to strike a balance between returns for private investors while meeting the needs of Brazilian leaders.

Publicly listed, the government holds the majority of its voting shares and the board includes cabinet ministers.

Petrobras has expanded outside Brazil and is successful attracting outside investment.

“In Brazil they were able to assimilate and develop new technology and really take advantage of the experience of private companies,” said PRI lawmaker Ildefonso Guajardo, a senior economic adviser to Pena Nieto.

Faced with the natural decline at its largest oil fields, Cantarell and Ku-Maloob-Zaap, Mexico could be producing less than half of the 2.5 million barrels per day it is pumping now within 15 years if nothing changes, said another independent board member of Pemex, Rogelio Gasca.

A constitutional reform would be aimed at luring major oil companies into the lucrative deep waters in the Gulf of Mexico, where Pemex estimates around 29 billion barrels of oil equivalent, or more than half of Mexico’s prospective resources.

But oil companies are not holding their breath.

“There is only one rule that never fails in Mexico,” said one industry executive who belongs to a round table of the largest global oil producers interested in working in Mexico, “Everything takes double the time that you think it will.”

($1 = 13.1863 Mexican pesos)

(Additional reporting by Elinor Comlay, Gabriel Stargardter and David Alire Garcia; Editing by Dave Graham and M.D. Golan)

Josefina Vazquez Mota, the PAN’s candidate, came in a distant third with just 25.4 percent of the vote on July 1, and the party will have far fewer seats in Congress.

The Institutional Revolutionary Party, or PRI, which ruled for most of the 20th century and was ousted 12 years ago, was the beneficiary the PAN’s collapse and bounced back to power.

President-elect Enrique Pena Nieto campaigned on a platform of ambitious labor, energy and fiscal reforms that look much like proposals that the PAN has failed to push through.

PAN lawmakers have said they will not block reforms that benefit Mexico’s long-term growth, even if the proposals come from a PRI president.

But they face a clear dilemma: How does the party maintain its integrity as an alternative to the PRI while lining up behind Pena Nieto, who is likely to reap the political rewards if the reforms are successful at re-invigorating the economy?

Having struggled through two terms in office without a majority in Congress, dealt with the financial crisis and become embroiled in a brutal war with drug gangs, some party leaders acknowledge the years in power have taken their toll.

“We need a self-analysis, an internal catharsis to put us back on track,” Eugenio Elorduy, a former governor of Baja California state, told Reuters.

Already the PAN is voicing support for measures which could set it at cross purposes with the PRI, potentially slowing down Pena Nieto’s reform agenda.

It could call for curbs on the power of public sector unions that have long supported the PRI, closer monitoring of public finances in state governments — two-thirds of which are under PRI control — and a second round of voting in presidential elections, analysts and party politicians say.

“The fundamental question facing the PAN is whether they pursue an agenda no matter who gets credit for it or whether they pursue party building. It is difficult to do both,” said Eric Farnsworth of the Washington-based Council of the Americas.

The PAN is projected to be the No. 3 force behind the PRI and a bloc of leftist parties in the 500-member lower house of Congress and No. 2 in the 128-seat Senate.

Still, it will be key to any deal-making and hopes to use that leverage to ensure Pena Nieto sticks to his campaign promises and does not bend to interest groups within the PRI.

“We know what we want in terms of energy reform, we know what we want in terms of tax reforms and education reforms. We presented those initiatives in Congress and they were blocked by the PRI over and over again,” said Vazquez Mota’s campaign manager Roberto Gil Zuarth, who is set to enter the Senate.

The PAN will have to decide what concessions it can demand from the PRI government to keep itself in the spotlight.

“There will of course be dialogue, but we will have our own agenda. One of the immediate items on that agenda is establishing electoral reforms to end campaign financing that is outside the boundaries of the law,” Gil Zuarth said.

Leftist runner-up Andres Manuel Lopez Obrador has accused the PRI of widespread vote buying in the election and is refusing to accept the results.

Backed by a group of leftist parties, Lopez Obrador wants to join forces with the PAN to claim in an electoral court that Pena Nieto and the PRI handed out gifts in exchange for support and was unfairly propped up by Mexico’s biggest media companies.

The PAN has said it will not seek to have the results of the election annulled but could still work with the PRD in Congress to pursue reforms of the political system and financing rules.

Voters are skeptical there will be much camaraderie in the new legislature, which convenes on September 1, after more than a decade of stalemate.

“Just like the PRI blocked Calderon’s proposals, the PAN will likely block the PRI, for revenge,” said high school teacher Sergio Francisco Javier.

‘JUDAS OF GUANAJUATO’

Founded on socially conservative, free-market values, the PAN was the main opposition force for most of the PRI’s rule between 1929 and 2000.

In the early days of its history in the 1940s, the PAN garnered much of its support from staunch Roman Catholics, who were opposed to the PRI’s anti-clerical politics.

Over the decades, the PAN fought to break the PRI’s grip on almost every aspect of Mexican political life. With charismatic businessman Vicente Fox as its candidate, it finally won the presidential election in 2000.

Felipe Calderon succeeded Fox in 2006 but both men failed to get their more ambitious reform proposals through Congress and were unable to meet their promises of robust economic growth.

Elorduy, the former state governor, and some other PAN loyalists say the party’s principles were diluted by power and that a small group around Calderon has tried to impose its views on the rest.

The split was laid bare in the party’s primaries in February when many believed the president backed his former Finance Minister Ernesto Cordero over Vazquez Mota for the nomination.

Octavio Aguilar, a member of Vazquez Mota’s campaign team, has complained that Calderon and key members of his government did little or nothing to help Vazquez Mota after she won the party’s nomination.

“Josefina was betrayed,” he told news website Reporte Indigo

Another party betrayal came from Fox himself.

A month before the election, the mustachioed and outspoken former president who has largely retired to his ranch in the central state of Guanajuato, said Mexicans should rally around the winner, implying Pena Nieto was far in the lead.

Earlier in the campaign, he said it would take a “miracle” for Vazquez Mota to win.

“Fox for us was such a significant figure, he marked a generation,” said PAN senator Adriana Gonzalez, 37, who is going to the lower house of Congress. “To know that he went over to the other side is heartbreaking.”

PAN leaders have been mulling whether to kick Fox out of the party for his comments.

“Judas of Guanajuato, that’s what the PAN is calling him now,” Juan Ignacio Zavala, the brother of first lady Margarita Zavala, said in El Financiero newspaper. “He pulled the rug out from under the party’s base.”

(Additional reporting by Michael O’Boyle; Editing by Kieran Murray and Cynthia Osterman)

With 97 percent of polling stations counted by Thursday afternoon, Pena Nieto held 38.3 percent of the vote, nearly 7 points ahead of leftist Andres Manuel Lopez Obrador.

A win for Pena Nieto sets up a return to power by the Institutional Revolutionary Party, or PRI, which ruled Mexico, at times ruthlessly, between 1929 and 2000.

Mexico’s Federal Electoral Institute, or IFE, expected to conclude the final vote count later on Thursday and certify the results on Sunday, when an official count of results from the congressional elections was due.

Pena Nieto claimed victory on Sunday when initial results showed him winning some 38 percent of the vote, about 6.5 points more than Lopez Obrador. Trailing in third was Josefina Vazquez Mota of the ruling conservative National Action Party, or PAN.

“It’s clear I won by a wide margin,” Pena Nieto told CNN on Thursday, saying there were “no grounds” for allegations of vote-buying lodged by the losing campaigns.

The final count, which includes recounts from more than half the polling stations, could still be subject to a challenge by Lopez Obrador with the country’s electoral tribunal. Lopez Obrador had demanded a recount of all the votes.

Pena Nieto has already been congratulated by outgoing President Felipe Calderon and leaders such as U.S. President Barack Obama and Brazilian President Dilma Rousseff.

Lopez Obrador alleged there were widespread irregularities, but the IFE has said it was only recounting votes from 54 percent of polling stations based on more specific criteria.

“There is no reason not to fully recognize the voting results,” said Leonardo Valdes, president of the IFE board.

The law stipulates a recount can only be requested at a polling station where there is a gap of less than 1 percentage point between the two leading candidates, or for other “inconsistencies” that could include hard-to-read ballots.

Lopez Obrador denounced what he called vote-buying and coercion on the part of the PRI. The party gained a reputation for vote-rigging during its 71-year hold on power, which ended when it was defeated by the PAN in a 2000 election.

Vazquez Mota of the PAN has levied similar accusations.

“We need the electoral authority to review in detail the campaign spending that evidently surpassed the limits established by the law and moreover were associated with buying and coercing voters,” she told reporters. “We should correct these inequalities so that we can have conditions of genuine competition and full democracy.”

Lopez Obrador also challenged the outcome when he finished a much closer second in the 2006 presidential election. He refused to concede then and called for street protests that blocked the main boulevard in Mexico City for weeks.

(Additional reporting by Daniel Trotta; Editing by Peter Cooney)

President-elect Enrique Pena Nieto plans to fire up Mexico’s lumbering economy by loosening labor laws, overhauling the weak tax system and opening up state oil monopoly Pemex to more private investment.

But the latest projections show the PRI will fall short of an absolute majority, or 50 percent plus one vote, in the 500-member lower house Chamber of Deputies and the 128-seat Senate.

That means Pena Nieto will need support from the conservative National Action Party (PAN) of outgoing President Felipe Calderon, to whom the PRI leader has paid generous tribute several times since his narrower-than-expected victory on Sunday.

The PAN prides itself on its principles and has said it will back measures it believes in. But having proposed similar economic reforms under Calderon, only to have them obstructed by the PRI, the PAN is not going to give its support for free.

“We are not going to be as selfish and shortsighted as the PRI was when it blocked all the reforms presented by Calderon,” said PAN senator Ruben Camarillo, a key party negotiator who will be moving to the lower house of Congress.

“But that does not mean giving the PRI a blank check.”

Jose Gonzalez Morfin, head of the PAN in the outgoing Senate and the possible leader of the party in the next lower house, said the PAN would demand the PRI include measures in their proposals to make unions more democratic and transparent.

“The (reform) has to come from the PRI so that things get back on track and unions end up really defending worker’s rights and not just their own power and impunity and shadiness that does not benefit the country at all,” Gonzalez Morfin said.

Fostering competition may also feature among demands from the PAN. Such deals might be tricky for the PRI, which has to protect its strong party base of public-sector employees and has connections to some of Mexico’s most powerful business groups.

Polling firm Consulta Mitofsky sees the PRI and its allies, the Greens, winning at most 249 seats in the lower house and 61 seats in the Senate. It forecasts that the PAN would win as many as 135 lower house seats and 38 Senate posts.

The PAN’s presidential candidate Josefina Vazquez Mota finished third after voters lost patience with the government’s management of the economy and failure to contain rampant drug-related violence. Calderon was barred by law from running again.

The PAN is not the only potential support for the PRI.

The small New Alliance Party (PANAL), a group linked to the teachers’ union, could win between four and 12 seats in the lower house and one in the Senate, Mitofsky said.

The union has traditionally been allied to the PRI and the PANAL could offer help to Pena Nieto.

The results suggest that in the best case scenario, the PRI will need support from the PANAL to assemble a majority in the lower house, but even with them, will fall short in the Senate.

And Pena Nieto will certainly need the PAN for the two-thirds majority required for constitutional changes, like the one needed to allow foreign companies to exploit Mexico’s oil resources with state firm Pemex.

“We know they are going to need the PAN to get the super majority to pass (reforms),” said Edwin Gutierrez, a portfolio manager at Aberdeen Asset Management in London. “The big question is: what’s the PAN’s price for cooperation?”

Opposing more private involvement in the oil industry is the leftist Party of the Democratic Revolution (PRD), which will have the second largest bloc in the lower house after an unexpectedly strong showing on Sunday by its presidential candidate Andres Manuel Lopez Obrador.

Lopez Obrador has yet to concede defeat and said he will ask election authorities to recount the votes. He said it had been rigged by the PRI, which ruled Mexico for seven decades, at times ruthlessly, before being ousted by the PAN in a 2000 vote.

NO BLANK CHECK

Pena Nieto could also face resistance inside his own party to an overhaul of Pemex, which has been an icon of Mexican self-sufficiency since a PRI government created it in 1938.

So he will need strong PAN support and discipline within his own ranks to secure a two-thirds majority — 334 votes are needed in the lower house and 86 in the senate.

Due to the complex mix of direct election and proportional representation used to award seats, final results for the make-up of Congress are still coming in.

Under Calderon, the PAN put forward many reform proposals similar to Pena Nieto’s plans, but was continually stymied by the PRD working together with factions of the PRI.

Part of the frustration with Calderon’s government was his inability to move forward with reforms in Congress.

Pena Nieto knows well the high cost of political failure, and there are signs that other groups potentially affected by the congressional negotiations are showing flexibility.

The long-running head of Mexico’s powerful oil workers’ union Carlos Romero Deschamps, who has been embroiled in corruption scandals in the past but is tapped for PRI senator, told Reuters the union was open to discussing reforms.

“Of course we will talk to construct a proposal that benefits the development of the oil industry,” he said.

PRI leaders are adamant that Pena Nieto will be able to strike deals with the opposition, often noting he had no majority for four of the six years he spent as governor of the populous State of Mexico between 2005 and 2011.

“Under Pena Nieto’s leadership, pulling together to pass reforms will be much easier,” said Manlio Fabio Beltrones, one of the PRI’s most important congressional power brokers.

“Now that we know he has won, we are going to quickly make decisions to end the discussion and start agreeing on things.”

Both Beltrones and Morfin said there was a window of opportunity to make headway between Congress reconvening in September and Pena Nieto taking office in December.

Pena Nieto is confident the varying factions of the PRI – a wide tent of interests cobbled together over the years to help the party hold power – will fall into line behind him.

Others say Pena Nieto might also be able to work with the PRD – but the party has struck a combative tone since Lopez Obrador came within 6.5 percentage points of Pena Nieto in the election.

Manuel Camacho Solis, an advisor to Lopez Obrador, is entering the Senate and says the left will stand up to Pena Nieto.

“The priority will be to go after political reforms that end the corruption that has invaded Mexico’s electoral system as a condition for everything else,” Camacho Solis said.

(Additional reporting by Michael O’Boyle. Editing by Dave Graham, Kieran Murray and Christopher Wilson)

After pledging to restore order and ramp up economic growth, Enrique Pena Nieto of the Institutional Revolutionary Party (PRI) had a clear lead over his rivals in exit polls and a “quick count” conducted by electoral authorities.

Although his main rival said it was too early to concede defeat, the 45-year-old Pena Nieto delivered a late-night victory speech to cheering supporters, and a senior electoral official said the PRI candidate’s lead was “irreversible”.

“Mexicans have given our party another chance. We are going to honor it with results,” a visibly moved Pena Nieto told followers packed inside the PRI headquarters in Mexico City.

Jubilant supporters waved banners sporting caricatures of their candidate and his trademark quiff, and confetti in the red, green and white of the Mexican flag – and the PRI’s colors – rained down inside the hall.

Outgoing President Felipe Calderon congratulated Pena Nieto on his triumph, which completed a dramatic comeback for the PRI.

With returns in from more two-thirds of polling booths, Pena Nieto had 37 percent of the vote, more than four percentage points clear of leftist rival Andres Manuel Lopez Obrador. His lead was slowly widening as the night drew on.

Initial projections by Milenio television suggested the PRI had not won enough votes for an absolute majority in either the Senate or the lower house of Congress.

Pena Nieto’s advantage was much less convincing than the PRI had hoped for, with most polls in the immediate run-up to the election showing he would win by 10 to 15 percentage points.

Having run Mexico as a virtual one-party state for most of the 20th century, it was ousted in an election 12 years ago and was seen by many as being on its death bed when it finished way back in third place in the 2006 presidential vote.

Renowned as much for his unfailingly well-groomed appearance as his political skills, the handsome Pena Nieto gave a fresh face to the PRI, helping to instill a new sense of discipline and make the party electable again.

He hopes to use economic reform as a springboard to ignite growth, create jobs and draw the heat out of a drug war that has killed over 55,000 people since late 2006.

He has pledged to boost economic growth to about 6 percent a year and make bold economic changes, including reforms to allow more private investment in Mexico’s state-run oil industry.

The electoral authorities’ quick count, an early representative sample from around the country, showed Pena Nieto with around 38 percent of the vote and Lopez Obrador in second with less than 32 percent.

Lopez Obrador could choose to challenge the election, as he did six years ago when he narrowly lost to Calderon and launched months of protests against alleged fraud.

He has said in recent weeks that this election campaign was also plagued with irregularities, raising concerns that he might again call his supporters onto the streets.

STINGING DEFEAT

Josefina Vazquez Mota of the ruling National Action Party, or PAN, trailed with less than 26 percent of the vote in Sunday’s election.

It was a humiliating defeat for conservative President Felipe Calderon’s party, worn out after a dozen years in power.

Inspiring high hopes when it was elected in 2000, the party has failed to ignite stronger economic growth and Calderon has had no answer to the rampant violence of Mexico’s drug war.

“Nothing has improved since the PAN got in,” said Mexico City plumber Raimundo Salazar, 44. “The PRI understands how things work here. And it knows how to manage the drug gangs.”

The telegenic Pena Nieto built his reputation as governor of the State of Mexico in 2005-2011, where he oversaw solid economic growth and brought down the state government’s debt.

“He did a really good job … building lots of hospitals, roads and schools,” said Lino Posadas, 30, a parking attendant from the town of San Jose del Rincon in the state.

To his critics, Pena Nieto is a product created by Mexico’s main television companies to serve as a proxy for the country’s biggest businesses and the ruling elites in the PRI.

“He’s been imposed on us by powerful interests like the TV stations and old presidents,” said Javier Aguilar, a 62-year-old biochemist. “How can it be that a country this miserable is home to the world’s richest man?” he said, referring to tycoon Carlos Slim.

Pena Nieto’s plans include raising tax revenues, a business-friendly overhaul of labor laws and steps to open the struggling state-owned oil giant Pemex to more private investment.

The planned reforms were also pushed by the PAN under Calderon, only to be stalled by the PRI in Congress. Indeed, with its close ties to the oil workers’ union, the PRI could prove a bigger obstacle to revamping Pemex than the PAN.

PRI’S RISE AND FALL

Created after the turmoil of the Mexican Revolution, the PRI laid the foundations for modern Mexico. It started out as a socialist party that nationalized the oil industry in the 1930s before drifting to the center to establish a corporatist model of rule once described as the “perfect dictatorship.”

But Mexicans tired of rampant corruption, rigged elections and heavy-handed rule under the PRI, and finally voted it out of power at the turn of the century.

The PAN took over under former Coca-Cola executive Vicente Fox, promising strong growth and more democratic government. But the economy underperformed its peers in Latin America for most of the 12-year rule by the PAN, which never had a majority in Congress and was unable to push through many reform plans.

When Calderon succeeded Fox in 2006, he deployed the army against warring drug gangs. Instead of quelling the violence, it soared to new heights and the relentless wave of beheadings and massacres turned even more voters away from the PAN.

Bit by bit, the PRI began to recover ground.

Despite its reputation for corruption, the PRI appeals to many voters as the only party with the experience needed to pacify the country and raise living standards.

Pena Nieto has vowed to stamp out the undemocratic excesses, misuse of public funds and shady acts of political patronage that tarnished the PRI’s decades in power.

Yet as the head of a beast whose tentacles still extend into every aspect of Mexican life, he will have his work cut out keeping the PRI clean, even if he is not already compromised by the deals he had to make to win the support of party barons.

He will take over at a time when Mexico’s finances are in good order and the economy is beginning to improve, although it still cannot generate enough work for the growing population.

Under the PAN, growth has averaged barely 2 percent a year. That has left hundreds of thousands of young Mexicans out of work and exposed them to the lure of quick, dangerous money in the pay of the drug gangs.

Wary of becoming bogged down in the same battle that exhausted Calderon, Pena Nieto has shied away from targeting the drug cartels, pledging instead to focus on reducing crime.

“The fight against crime will continue, yes, with a new strategy to reduce violence and above all protect the lives of all Mexicans,” Pena Nieto said on Sunday night.

However, he dismissed accusations by opponents that the PRI might try to make agreements with drug cartels. “Let it be very clear: There will be no deal, no truce with organized crime.”

(Additional reporting by Miguel Angel Gutierrez, Daniel Trotta, Ioan Grillo and David Alire Garcia.; Editing by Kieran Murray, Christopher Wilson and W Simon)

Pena Nieto, 45, of the Institutional Revolutionary Party (PRI), led by between 8 and 11 percentage points in exit polls published by three of Mexico’s main television networks after voting ended on Sunday night.

Shortly afterward his campaign manager, Luis Videgaray, declared victory.

“It is a resounding triumph,” Videgaray told Milenio television, adding that he was hopeful the PRI would have a majority in the Senate and possibly in the lower house of Congress, too.

The PRI, which governed Mexico for 71 years until losing power in 2000, has staged a comeback behind the handsome Pena Nieto, who has pledged to open state-owned oil monopoly Pemex to foreign investors, raise tax revenue and liberalize the labor market.

The exit polls showed him winning around 40 percent of the vote. Leftist rival Andres Manuel Lopez Obrador was in second place with Josefina Vazquez Mota of the ruling National Action Party, or PAN, trailing in third.

“I recognize that the trend up to this point is not in my favor,” said Vazquez Mota, whose campaign was dragged down by a brutal war with drug cartels and the government’s patchy economic record.

Preliminary official results were due in the next few hours.

“It’s time for the PRI to return. They’re the only ones who know how to govern,” said Candelaria Puc, 70, as she voted in the beach resort of Cancun. “The PRI is tough, but they won’t let the drug violence get out of control.”

Others feared a return to the worst years of PRI rule and put Pena Nieto’s big lead down to his cozy relationship with Televisa, Mexico’s top broadcaster.

“It’s the same party as ever and the people who vote for him (Pena Nieto) believe they are going to live happily ever after like in the soap operas,” Humberto Parra, a systems engineer, said as he went to vote in Mexico City.

By the time it lost to the PAN in 2000, the PRI had a reputation for widespread corruption, electoral fraud and authoritarianism.

The PRI was in disarray by 2006, when its presidential candidate came in a distant third, but it has rebounded since then and Pena Nieto gave it a new face.

He is promising to restore security to cities and towns ravaged by the drug war and also plans to reform Pemex, a proposal once considered political suicide.

Mexicans are fiercely protective of Pemex, but the PRI, which nationalized oil production in 1938, could be the one party able to liberalize the energy industry.

The PRI laid the foundations of the modern state with a nimble blend of politics and patronage that allowed it to appeal to labor unions and captains of industry at the same time.

Mexicans eventually tired of heavy-handedness that stifled dissent, rewarded loyalists and allowed widespread corruption.

(Additional reporting by Miguel Angel Gutierrez, Ana Isabel Martinez, Pablo Garibian; Editing by Dave Graham and Kieran Murray and Christopher Wilson)

Twelve years after the Institutional Revolutionary Party (PRI) lost power, opinion polls showed its candidate, Enrique Pena Nieto, heading into the vote with a double-digit lead over his opponents.

The PRI was ousted in 2000 after 71 years of virtual single-party rule that was tainted by corruption, electoral fraud and authoritarianism.

But Pena Nieto has established himself as the new face of the party and it has bounced back in part because of economic malaise and lawlessness under the conservative National Action Party (PAN).

A noisy crowd of protesters met Pena Nieto when he voted in Atlacomulco, about two hours northwest of the capital, but hundreds of his supporters shouted down the demonstrators.

A youthful-looking former governor of the State of Mexico, Pena Nieto promises reforms to improve the country’s tax take, loosen the job market and open the state-owned oil company Pemex to more foreign investment, citing Brazil’s Petrobras as a model

Mexicans are fiercely protective of Pemex, but the PRI, which nationalized oil production in 1938, could be the one party able to liberalize the energy sector.

“It’s time for the PRI to return. They’re the only ones who know how to govern,” said Candelaria Puc, 70, preparing to vote in the beach resort of Cancun with the help of a friend because she cannot read or write.

“The PRI is tough, but they won’t let the drug violence get out of control,” she added, speaking in a mix of Mayan and Spanish.

Others feared a return to the worst years of PRI rule and put Pena Nieto’s big lead down to his cozy relationship with Televisa, Mexico’s top broadcaster.

“It’s the same party as ever and the people who vote for him (Pena Nieto) believe they are going to live happily ever after like in the soap operas,” Humberto Parra, a systems engineer, said as he went to vote in Mexico City.

Pena Nieto’s closest challenger in pre-election polling was Andres Manuel Lopez Obrador, a leftist former Mexico City mayor who narrowly lost the 2006 election to President Felipe Calderon of the PAN.

Lopez Obrador claimed fraud after that election and launched months of street protests that failed to overturn the result and instead alienated many former supporters. His claims that the PRI is this time preparing a fraud have raised concerns of more protests, although polls suggest Lopez Obrador will fall short of the 35 percent of votes he won in 2006.

“This is no time for the country to go in reverse,” a relaxed Lopez Obrador said of the PRI before voting.

CONSERVATIVES LOST SUPPORT

Bidding to become the country’s first female president, PAN candidate Josefina Vazquez Mota was third in the polls.

The PAN ended the PRI’s long rule in 2000 but years of weak growth and the death of more than 55,000 people in drug-related killings since 2007 have steadily eroded its popularity.

Violence continued in the days before Sunday’s vote.

In the Pacific beach resort of Acapulco, one of the cities most affected by the drug war, four people were killed on Saturday, two of them tortured and beheaded, a hallmark of drug-related killings.

The PRI mayoral candidate in the city of Marquelia, about 40 miles from Acapulco, was kidnapped by an armed group, prompting a protest of his supporters that closed a highway for five hours, a party leader said.

Final polls showed Pena Nieto winning 40 percent to 45 percent of the vote and Lopez Obrador close to 30 percent with Vazquez Mota not far behind. The candidate with the most votes wins, with no need for a second round.

The first national exit polls were expected when voting ends in the westernmost part of the country at 8 p.m. Mexico City time (2100 EDT/0100 GMT).

The PRI laid the foundations of the modern state with a nimble blend of politics and patronage that allowed it to appeal to labor unions and captains of industry at the same time.

Mexicans eventually tired of the one-party rule that stifled dissent, rewarded loyalists and allowed widespread corruption.

The era of old-time PRI bosses known as “dinosaurs” gave way to a more democratic era under the 1994-2000 presidency of Ernesto Zedillo, who instituted reforms that allowed opposition parties to compete in a fair vote and oust the PRI.

On Sunday voters will also decide on six state governors, both houses of Congress and an array of state legislatures and city halls, with gains expected for the PRI.

The legislative results will help determine whether Pena Nieto will be able to push through his reform agenda.

(Additional reporting by Dave Graham, Ioan Grillo, Gabriel Stargardter, Tomas Sarmiento, Lizbeth Diaz, David Alire Garcia; Editing by Daniel Trotta and Kieran Murray; Desking by Cynthia Osterman)

The Federal Electoral Institute (IFE) will oversee the presidential vote that polls suggest will be won by the Institutional Revolutionary Party (PRI), whose frequently tainted elections helped it maintain power from 1929 to 2000.

Born out of scandal after a 1988 election widely believed to have been fixed, the IFE is independent of the government, with its board members nominated by all the political parties.

The body will have 696 observers from 69 countries helping it police Sunday’s election, which will be the most closely monitored in the country’s history, the IFE says.

“The IFE today is probably the most professional electoral body out there, worldwide,” said Jeffrey Weldon, a political scientist from Mexico City’s private ITAM University.

Many Mexicans, however, do not share his belief.

Only 30 percent of voters polled in a survey published this week by Consula Mitofsky said they had a high level of confidence in the IFE.

Mexicans voice fears of more subtle election manipulation such as vote-buying and media manipulation ahead of balloting as the PRI aims to regain power after 12 years in opposition.

The country will also elect governors from six states as well as the entire 500-member lower house and 128-seat Senate.

The PRI’s fresh-faced candidate Enrique Pena Nieto, 45, is leading most polls by a big margin and says he will win cleanly.

However, his leftist rival Andres Manuel Lopez Obrador has warned voters the PRI is returning to its old ways and handing out cash in exchange for votes.

Lopez Obrador lost the 2006 election to President Felipe Calderon of the conservative National Action Party (PAN) by barely half a percentage point, or over 200,000 votes. He then alleged massive fraud and refused to accept the result.

His protests, which shut down the main boulevard through Mexico City for weeks, remain fresh in the minds of many Mexicans and the candidate has said it could happen again.

OLD TRICKS OF THE PAST

Fears about fraud may be rooted in Mexico’s past, when the PRI employed a host of tactics to tilt elections in its favor.

The “pregnant ballot box” might arrive stuffed before the polls opened. The “carousel” would have gangs of voters making the rounds at several polling stations, voting early and often.

Then there were food-inspired methods.

“Operation Tamal” would seek to buy votes via breakfast parties to which the poor were invited, and on election day a “taco” was one folded ballot stuffed with many more.

Such widespread deceit is very hard today, experts say.

Voters must show identity cards and political parties can watch each of the 143,000 voting places. The PRI and Lopez Obrador’s leftist coalition plan to be at more than 96 percent of the polling stations. Ballots are numbered and difficult to counterfeit, while voters have their thumbs stained in ink when leaving the polls.

In addition to the foreign observers, the United Nations Development Program (UNDP) has provided funds and technical assistance to 44 Mexican organizations watching the vote, double the number of groups funded in 2006.

“The difference today is we have organizations that are much more consolidated and professional and a more mature civil society and well trained election observers,” said Maria del Carmen Sacasa, the UNDP’s representative in Mexico.

But mistrust persists.

The leftist Party of the Democratic Revolution (PRD) backing Lopez Obrador accused the PRI of handing out 70 million pesos ($5.21 million) worth of pre-paid debit cards in exchange for votes and has accused the PRI of giving cell phones to voters to snap pictures of their PRI-marked ballot in exchange for cash.

The PRI rejected the claims as “false and absurd.”

Such irregularities would be almost impossible for electoral authorities to catch, said Julian Quibell, representative of the National Democratic Institute (NDI) in Mexico.

“These things probably happen but it’s not very efficient and not very widespread,” Quibell said. “It’s not going to change the outcome of the national election.” ($1 = 13.4259 Mexican pesos)

(Editing by Daniel Trotta and Paul Simao)

Voters elect a new president on Sunday and many are eager for the next government to fire up an underperforming economy and end rampant violence by drug gangs, sore points that have eroded confidence in the ruling National Action Party, or PAN.

Pena Nieto is running for the opposition Institutional Revolutionary Party (PRI), which laid the foundations of modern Mexico and ruled for most of the 20th century but is widely remembered for its corruption and suppression of dissent.

The PRI was ousted by the conservative PAN in a 2000 election, but has bounced back in the last few years, insisting it has learned from its mistakes and swinging the full might of its formidable party machinery behind the telegenic Pena Nieto.

The PAN raised high hopes when it came to power, but annual economic growth averaged barely 2 percent under its two governments and it has failed to contain spiraling criminal violence, crippling its hopes of a third term.

“We want a country that lives in peace, is calm and is safe,” Pena Nieto, 45, told tens of thousands of supporters in the central city of Toluca on the last day of campaigning.

Three polls published on Wednesday all showed him with a double-digit lead over his rivals.

Wearing red baseball caps and red and white T-shirts handed out by the party, supporters shouted “Presidente, Presidente” as Pena Nieto took the stage in Toluca. But the rally was otherwise largely subdued.

“We have to give the PRI another chance, the PAN has shown it was not up to the job,” said Ignacia Rodriguez, 50, a street vendor in Toluca. “They’ve failed the test.”

Pena Nieto’s closest rival is leftist candidate Andres Manuel Lopez Obrador, a former mayor of Mexico City who narrowly lost the 2006 election to President Felipe Calderon and then contested the results, staging months of protests that unnerved investors in Latin America’s second-largest economy.

He has recently stirred up fears of new unrest, accusing the PRI of trying to rig the vote, although any protests may be short-lived if Pena Nieto wins by a wide margin.

The prospect of that victory fills some Mexicans with fear that the country is heading back towards a state dominated by one party.

“Lopez Obrador is the only option not to return to a dictatorship,” said drama student Mezli Gutierrez, 24, as she joined thousands marching to a closing rally in Mexico City’s main square. “The PRI is a completely rotten system.”

PAN candidate Josefina Vazquez Mota told supporters at her final campaign rally near Mexico’s second city Guadalajara that voters needed to be mindful of foul play on Sunday.

“I invite you all to be election observers, so no-one’s vote is manipulated and no-one feels pressured,” she said.

NEW PRI

Pena Nieto underlined his commitment to change in an interview published on Wednesday in the newspaper El Universal.

“There is a new PRI … It’s the others who have not changed. They are living in the past,” he said. “But the PRI never left. It has lost and won, competed democratically and understood change.”

Calderon’s struggles with the sputtering economy have been exacerbated by the PAN’s lack of a majority in Congress.

He has been unable to push through many of his planned reforms due to opposition from the PRI and other parties, and the brutality of drug war violence has eroded his standing.

Rampant violence between drug cartels and their clashes with the state has claimed more than 55,000 lives since 2007.

Calderon sent in the armed forces to bring the gangs to heel soon after taking office in December 2006, but despite capturing or killing many top bosses, the bloodshed has escalated.

Pena Nieto is planning to boost growth with reforms similar to those his party helped thwart in Congress under Calderon.

He has pledged to overhaul the tax system and open up state oil monopoly Pemex to more private investment in exploration, refining and production, breaking with traditions of the PRI, which nationalized Mexico’s oil industry in 1938.

Recent polls suggest the PRI could win a working majority in both the Senate and lower house of Congress.

But even if he has the majorities, Pena Nieto faces a challenge to shake up Pemex, which is struggling with a heavy tax burden, bloated workforce and oil fields in decline.

A close result would raise the risk of demonstrations, particularly as Lopez Obrador has the support of a newly emerged student movement that shook up the campaign with huge rallies.

In Mexico City, banners peppered the main thoroughfare, which Lopez Obrador brought to a standstill with post-election protests six years ago, reading: “I remember the devaluations, the killings, the corruption. Don’t vote for the PRI.”

Some protesters vowed to take the streets again if Lopez Obrador issues a rallying call.

Mexican financial markets have already factored in a Pena Nieto win, so a close finish that puts his mandate and economic reforms at risk could spook investors and hit asset prices.

The final three polls of the campaign gave the PRI candidate a lead of between 10 and 17 points over Lopez Obrador with the PAN’s Josefina Vazquez Mota trailing in third.

They were conducted between June 21 and 25 using samples of 1,200 to 2,000 eligible voters. The margin of error for the polls was 2.9 percentage points or lower.

(With reporting by Michael O’Boyle in Zapopan, Ioan Grillo, Miguel Angel Gutierrez, Gabriel Stargardter and David Alire Garcia in Mexico City; Writing by Simon Gardner; Editing by Kieran Murray and David Brunnstrom)

Mexico will elect a new president amid growing demands for an end to the grisly violence of its drug war and a stronger economy, two issues that have eroded confidence in the ruling National Action Party, or PAN.

Pena Nieto, who has led throughout the race, belongs to the opposition Institutional Revolutionary Party (PRI) which ruled for most of the 20th century and is remembered by critics for corruption, vote-rigging and suppression of dissent.

The PRI was ousted by the conservative PAN at a 2000 election but has bounced back in the last few years, insisting it has learned from its mistakes.

Many voters frustrated by two PAN governments that failed to generate strong growth and got dragged down in the drug war hope the PRI can bring stability and a stronger government.

“We want a country that lives in peace, is calm and is safe,” Pena Nieto, 45, told tens of thousands of supporters in the central city of Toluca on the last day of campaigning.

Three polls published earlier on Wednesday showed him with a double digit lead over his rivals.

Pena Nieto underlined his commitment to change in an interview published on Wednesday in the newspaper El Universal.

“There is a new PRI … It’s the others who have not changed. They are living in the past,” he said. “But the PRI never left. It has lost and won, competed democratically and understood change.”

Wearing red baseball caps and red and white T-shirts handed out by the party, supporters shouted “Presidente” as Pena Nieto took the stage in Toluca. But the rally was otherwise largely subdued.

“We have a candidate with new ideas,” said Domingo Santiago, 67, a retired maintenance worker who latched on to Pena Nieto’s promises to help the elderly. “I’m not saying there weren’t abuses before, but he is seeking reform, something better for the people, without going back to the old days.”

Pena Nieto resorted to a trademark campaign tactic, signing before a notary pledges to build highways and a train to the capital if he wins.

The PAN’s victory in 2000 was hailed as a triumph of democracy, but its record on the economy and its failure to contain violent crime has crippled its hopes of staying in power.

President Felipe Calderon has struggled to improve weak growth, unable to push through many of his planned reforms because of opposition from the PRI and other parties in Congress, where the PAN has never had a majority.

Rampant violence between drug cartels and their clashes with the state has claimed more than 55,000 lives since 2007, further eroding confidence in the government.

Calderon sent in the armed forces to bring the gangs to heel soon after taking office in December 2006, but despite capturing or killing many top bosses, the bloodshed has escalated.

BREAK FROM PRI’S PAST

Pena Nieto wants to overhaul the tax system and open up state oil monopoly Pemex to more private investment, breaking with the traditions of the PRI, which nationalized Mexico’s oil industry in 1938.

The bold steps he has promised to boost outside involvement in oil exploration, refining and production are central to his plans for faster growth.

Recent polls suggest the PRI could win a working majority in both the Senate and lower house of Congress. That would help strengthen its mandate to push through fiscal and energy reforms that stalled under Calderon.

But even if he has the majorities, Pena Nieto faces a challenge to shake up Pemex, which is struggling with a heavy tax burden, bloated workforce and oil fields in decline.

Pena Nieto’s closest rival is leftist candidate Andres Manuel Lopez Obrador, a former mayor of Mexico City who narrowly lost the 2006 election to Calderon and then contested the results, staging months of protests that unnerved investors in Latin America’s second-largest economy.

He has recently stirred up fears of new unrest, accusing the PRI of trying to rig the vote, although any protests may be short-lived if Pena Nieto wins by a wide margin.

A close result would raise the risk of demonstrations, particularly as Lopez Obrador has the support of a newly emerged student movement that shook up the campaign with huge rallies.

Mexican financial markets have already factored in a Pena Nieto win, so a close finish that puts his mandate and economic reforms at risk could spook investors and hit asset prices.

The final three polls of the campaign gave the PRI candidate a lead of between 10 and 17 points over Lopez Obrador with the PAN’s Josefina Vazquez Mota trailing in third. They were conducted between June 21 and 25 using samples of 1,200 to 2,000 eligible voters. The margin of error for the polls was 2.9 percentage points or lower.

(With reporting by David Alire Garcia, Miguel Angel Gutierrez and Gabriel Stargardter in Mexico City; Writing by Simon Gardner; Editing by Kieran Murray)