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Puerto Vallarta News NetworkEditorials | Opinions | April 2008 

Will PEMEX be Reformed After All?
email this pageprint this pageemail usAllan Wall - PVNN

There may be a lot more oil in Mexico's territorial waters, but its oil monopoly PEMEX doesn't have the funds or expertise to exploit it.
 
A recent discovery off the coast of Brazil could revolutionize the international oil market. It's called the Carioca field, and preliminary estimates indicate the possibility that it could be the world's third-largest.

Brazil has a state oil company, called Petrobras, of which the Brazilian government is the principal owner. The reports of the potential of the Carioca field sent the company's shares soaring on the New York stock exchange.

Petrobras has found a successful balance between state ownership and cooperation with private companies, and is now among the leaders in deepwater and ultra-deep water oil extraction.

So it's not just having oil in your territory that counts. The petroleum is worthless if you can't exploit it. So Brazil is in a good position to take advantage of the Carioca field.

On the other hand, Mexico's petroleum industry is in a real bind. There may be a lot more oil in Mexico's territorial waters, but its oil monopoly PEMEX (Pétroleos Mexicanos) doesn't have the funds or expertise to exploit it. After all, the Mexican government uses PEMEX as a golden goose, to supply 40% of the federal budget. So it can't be run like a regular oil company.

PEMEX can't partner with private oil companies to exploit offshore fields, it can only subcontract private companies at set fees. That doesn't provide much of an incentive for private companies who would be happy to find a lot of oil for Mexico.

Shares of stock in PEMEX? They don't exist, eliminating another means of capitalization.

Unless Mexican reform PEMEX, to make it more flexible, efficient and profitable, it's on the way down.

By Mexican law, all of its resources are the property of the nation, and oil is jealously guarded.

About 90% of the world's known oil reserves belong to some kind of state oil company. But most of them are flexible enough to allow private investment, and partnerships with private companies.

But such proposals are anathema to many in Mexico, which has one of the strictest oil systems in the world. Even Venezuela and Cuba (!) allow more private investment in oil exploration.

There's something psychological in the Mexican collective psyche which makes it difficult to reform PEMEX. For a Mexican politician to just mention private money and oil in the same sentence is to invite a torrent of hysteria.

It's a contrast with some other sectors of the Mexican economy. In just a few years, Mexico changed from a highly-protectionist state which severely restricted imports, to a major free-trading nation.

Even the mining industry is open to foreign investment, selling concessions to private companies, even foreign companies.

Petroleum, though, is another question entirely. Petroleum is tied up with Mexican nationalism and sovereignty. In 1938, president Lazaro Cardenas nationalized Mexico's petroleum, kicked out the foreign oil companies and founded PEMEX. This story is recounted to Mexican school children every March 18th on Oil Expropriation Day. The belief that the oil belongs to Mexico and mustn't be privatized is deeply rooted.

In 2008, it's clear that PEMEX must be reformed. The question is how?

On April 8th the Calderon administration sent its reform proposals to Congress, and the president delivered a speech on national television, assuring viewers that the plan wasn't to privatize PEMEX, but strengthen it.

The truth of the matter is that the reform package doesn't go very far, it's really a "Reform Lite." However, it sounds like it's a step toward more autonomy and flexibility for PEMEX, with the potential to run it a little more like an oil company and a little less like the political golden goose it now is.

But even "Reform Lite" is going too far for the opposition. Andres Manuel Lopez Obrador (AMLO), who barely lost to Calderon in the 2006 election and has never acknowledged defeat, opposes investment in PEMEX with any private money, foreign or domestic. And a coalition of opposition politicians known as FAP (the Broad Progressive Front) has taken control of the podiums of the both the Mexican Senate and House of Representatives.

In order to break through the psychological wall surrounding PEMEX, proponents of reform have to make their case based on Mexican sovereignty. How is Mexico's sovereignty served by a badly-administered state oil company that ignores the technical and economic realities of the oil industry?

Hopefully, when all the smoke has settled, some kind of useful reform will be enacted.
Allan Wall is an American citizen who has been teaching English in Mexico since 1991, and writing articles about various aspects of Mexico and Mexican society for the past decade. Some of these articles are about Mexico's political scene, history and culture, tourism, and Mexican emigration as viewed from south of the border, which you can read on his website at AllanWall.net.

Click HERE for more articles by Allan Wall.



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