April
21, 2008
Will Mexican Petroleum, PEMEX, Be Reformed After All?
By Allan Wall
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
(Petróleos 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
Mexico reforms 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 an 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 schoolchildren
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 to 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 both the Mexican Senate and Chamber
of Deputies.
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, a MexiData.info columnist, recently returned from a tour of duty in Iraq. He currently resides in Mexico, where he has lived since 1991.
