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 Business News | May 2006 
Oil a Sticky Issue for Next Mexico President
 Catherine Bremer - Reuters
| | Pipes carrying Mexican crude oil for export, shine under the sun at the Dos Bocas terminal in the swampy south eastern state of Tabasco September 20, 2000. Although oil exports finance more than a third of government spending, the bonanzas of current and past booms have rarely touched the poor, and one in every two Mexicans still struggles on less than $5 a day. (Andrew Winning/Reuters) |
Romana Perez Vidal de Cantarell, the illiterate widow of a poor fisherman, scrapes a living selling cold drinks in this shabby fishing village on the sweltering Gulf of Mexico coast.
It's not the life you'd expect for the widow of the man who set off an oil boom with his 1976 discovery of a massive oil field that has earned Mexico tens of billions of dollars.
"They never gave him anything. He died utterly poor," she said, stroking the small gold medal that was Rudecindo Cantarell's reward for leading officials to the oily bubbles he spotted gurgling up from the seabed.
"The oil belongs to all Mexicans but even we haven't benefited. They keep it all," she said, nodding toward the sea where a mass of state-owned oil rigs suck away at the field named Cantarell, source of 60 percent of Mexico's oil.
Her bitterness echoes the way millions feel about the oil wealth that passes them by. Although oil exports finance more than a third of government spending, the bonanzas of current and past booms have rarely touched the poor, and one in every two Mexicans still struggles on less than $5 a day.
In Isla Aguada, a desolate little town on a strip of land on the Gulf of Mexico coast, homes have old strips of cloth for doors and the fishing port lies in ruin, while in the distance Cantarell's rigs suck up $100 million worth of oil a day.
If oil dollars have failed to trickle down to the poor, neither have they been adequately pumped into oil exploration, meaning Mexico's reserves are falling and its prospects for remaining a top 10 exporter of crude are gloomy.
Mexico is riding a crest of giddy oil prices and record output, scooping up unbudgeted oil revenues of $22 billion over 2004 and 2005. But the dollars have dissipated away into routine spending at federal and state levels with no grand projects to show off.
When the crunch comes, and analysts say price swings and declining reserves make it inevitable, Mexico's next president -- to be decided in a July election -- will face unprecedented pressure to beef up the oil industry and better manage its profits.
"I don't think politically anyone's willing to put their neck on the line in this type of environment. The only thing that will force a change is something really dramatic," said John Padilla, head of energy research firm IPD Latin America.
"But whoever comes into power is going to have some very serious decisions to make over the next six years."
WEALTH GAP
President Vicente Fox has won plaudits for keeping the economy steady and reducing foreign debt. He has trimmed extreme poverty levels and overseen a huge expansion of government credit for poor families to buy cheap homes.
Yet education remains miserably underfunded, and a lack of job opportunities prompts hundreds of thousands of Mexicans to risk their lives sneaking across the U.S. border each year.
"You've had 10 years of incredible oil revenues, so why don't we see some material difference in living standards?" said George Baker of Mexico Energy Intelligence in Houston.
Anachronistic labor laws mean thousands of redundant oil workers at state oil monopoly Pemex are paid a paltry wage to hang around at closed plants along the Gulf of Mexico coast.
That causes ludicrous operating inefficiencies and keeps those families on the bread line. At the same time, the bulk of Pemex's revenues are siphoned off in tax rather than spent on exploring for alternatives to Cantarell, which is set to go into decline after this year.
Pemex's running costs are colossal due to a cumbersome contracting system, a bloated workforce, heavy pension costs and payments on its $50 billion debt.
Endemic corruption has been largely cleaned up, but Pemex critics reckon $2 billion a year still goes unaccounted for.
The company wants the law changed to make it more autonomous and to let it form foreign partnerships. But Fox has failed to coax the opposition-dominated Congress into doing anything more than trim Pemex's tax bill.
"Pemex is one of the world's biggest oil companies but it's regarded as a nonentity," said an executive at one of the foreign oil majors based in Mexico and lobbying for change.
"The success story for the rest of the oil business is that we always work in joint ventures. Until Pemex can do that it is stuck," he said, noting Pemex is the only oil major to snub the informal industry meetings where technical know-how is shared.
DEEP WATERS
Every year spent debating whether to let Pemex tap private expertise and capital so that it can access deepwater oil puts more pressure on it to strike lucky first time around.
Yet oil is a hypersensitive subject in privatization-wary Mexico, and the three main candidates for the July 2 presidential election have been tight-lipped about energy policy.
Conservative Felipe Calderon, who recently took the lead in polls, is open to technology-sharing alliances to help Pemex access deepwater oil, but he has given little detail.
Leftist Andres Manuel Lopez Obrador opposes foreign alliances, however, as does third-placed Roberto Madrazo.
Whoever wins the election faces the same obstacle Fox did -- a divided Congress that could easily block reforms.
And Mexico's system of six-year terms with no re-election gives presidents little incentive to force painful change.
"All the candidates are dancing around the issue," said Padilla. "There'll be more Band-Aid solutions. The problem is the wound is festering larger and larger to the point where Band-Aids are no longer going to be sufficient." |
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