Mexico's state oil monopoly, Petroleos Mexicanos, is inviting foreign companies to bid on $8.8bn worth of multiple service contracts.

But the contracts, meant to increase production of natural gas in proven fields and avoid expensive imports in the coming years, have met with controversy.

The company, known as Pemex, will present the contracts at a conference in Mexico City on Thursday and Friday, five months after it had originally planned. Yet only a week earlier Pemex released a draft of the contracts, which has left big questions about their political viability.

The multiple service contracts are a hot issue in Mexico, which nationalised its oil industry in 1938. Some opposition politicians are suspicious of President Vicente Fox's plans to invite foreign investment, believing them to be a step toward privatisation. The contracts will face stiff opposition.

Pemex reportedly passed earlier drafts of the contracts for comments to potential bidders including oil companies Chevron Texaco, Amoco BP, Exxon- Mobil, Shell, Total Fina, Repsol-YPF, and the construction giant Schlumberger.

Faced with increasing demand, declining reserves and imports that supply a quarter of its gas consumption, Pemex needs new investment in its gas fields. But a heavy tax burden - Pemex funds a third of the federal budget - has left the company taking on debt to support operations.

Pemex wants the contractors to put up $8.8bn over 15 years to develop proven fields of non-associated gas in the Burgos Basin in the Gulf of Mexico. The field, which produces 1bn cubic feet per day of liquid natural gas, is declining faster than expected and has failed to meet its targets of 1.4bn cubic feet per day.

"They are looking for a mechanism to turn over this hellish business to someone else, for whom it won't be so hellish," said George Baker of Mexico Energy Intelligence, a Houston-based consultancy.

By law, Pemex is permitted to hire contractors only on a fee-for-service basis, and cannot pay them according to production or share the risks in developing energy fields. Pemex insists it is merely bundling its service contracts together.

But others, including Adrian Lajous, former Pemex director, believe the company is pushing the law with the contracts. "Operating at the limits of the law raises multiple risks for the state officials involved in its administration and for the companies that sign these contracts," said Mr Lajous, who now directs the Oxford Institute for Energy Studies.

Pemex irked the Mexican Senate in December, when it invited companies to hear details about the contracts without first informing politicians. Raśl Mun~oz Leos, Pemex director, then promised to send the Senate any contracts to be put to bid but has yet to do so.

Under a complicated arrangement, contractors will be repaid over 15 years from the proceeds of the gas produced and sold. Their profits will come from a 13.9 per cent cushion for financing and for completing the work under budget, not from any rights to the gas produced, said Sergio Guaso, director of economic analysis for Pemex Exploration and Production.

But in a letter to the Mexican Senate, Pemex warned that the project is viable only if the government reduces its tax burden, which averages 60.8 per cent. Contractors' claims are senior to those of tax authorities under the contract, Mr Guaso said.

In spite of the potential conflicts, countries as far away as Australia are preparing bidders for the contracts.