Mexico's Battle over Oil

[Joanne98]

On April 8, President Felipe Calderon dropped a political bomb on the Mexican political scene. The Senate received an executive initiative that would fundamentally change the structure and operations of the oil company, Petroleos Mexicanos (Pemex). Key operations of the state-owned enterprise would pass into private hands.

With this move, Calderon and his National Action Party (PAN) took care to avoid proposing modifications to the Mexican constitution. National ownership of petroleum is a touchstone of nationalist pride in Mexico since President Lazaro Cardenas expropriated private companies on March 18, 1938. At that time, citizens sick of the arrogance and voracity of foreign oil companies supported the expropriation by donating everything from live chickens to family jewels to pay compensation and regain control of the resource. The Mexican constitution is very clear about who owns Mexican oil: “The nation has direct dominion over all national resources of the continental platform… (including) petroleum and all solid, liquid or gaseous hydrocarbons …”

Calderon presented the “energy reform initiative” as an administrative packet to save Pemex from a deep financial and operational crisis. To these neoliberal administrators, the only way out of this crisis is to turn to the private sector. According to the Calderon government, Mexican citizens and politicians must now acknowledge that Mexican administrators are incapable of rising to the lucrative challenge at hand, Mexican scientists can’t provide the needed technology, and Mexican consumers prefer public services in foreign hands. That line will be a hard sell, given the history of the oil industry in Mexico and current trends in Latin America.

Bleeding Pemex
The campaign to privatize Pemex builds on fear and exaggerated claims of the perils of not doing what the president wants. A recent report from the refineries division lays out a scathing critique: “The refining industry is in a crisis situation that negatively affects its ability to comply with its objectives of efficiency and profitability in supplying domestic demand for petroleum products. This also keeps it from taking advantage of favorable conditions in the world market…”

It goes on to assert that “we have no comprehensive studies of infrastructure conditions, so processing plants experience four times more unplanned work stoppages than in (the U.S. Northern Gulf Coast.)” Insufficient and unreliable systems of transportation, distribution and storage have led to a crisis situation that “has decreased operational flexibility and limited the ability to respond to the needs of the market efficiently, which has increased the vulnerability of operations.”

Pipelines are on average 25 years old, with numerous leaks and illegal connections. The lack of refining capacity costs Pemex an estimated $900 million dollars in 2000 and a whopping $3.5 billion dollars by 2007. There is an immediate need to increase refinery capacity by 50%. The company devotes only a fifth as much resources to engineering in processing and manufacturing as it did 20 years ago.

As a result, Pemex today imports 40% of distilled petroleum products to cover domestic sales. The cost of imports has gone from $5.5 billion dollars in 2004 to $16.8 billion in 2007, with demand expected to grow. Proven reserves are calculated to last only 9.2 years.

According to the government’s own reports, then, Pemex has been virtually abandoned over the past quarter of a century. Given the nation’s reliance on oil revenues, why weren’t new refineries built and old ones converted? Why was the infrastructure left to deteriorate?

Where the Responsibility Lies
Ironically the politicians calling for handing over refining and other Pemex operations to foreign companies are the same ones responsible at least in part for the company’s current incapacity. What all the reports fail to mention is that much of the deterioration of Pemex occurred under the watch of the same political party that now argues that the only way to save the company is to contract out to the private sector. Felipe Calderon served as secretary of energy in the Fox administration from 2003-2004. PAN governments have held power for nearly eight years, during which time Pemex had record sales due to high international oil prices. What happened to all that money? Why wasn’t it reinvested in the oil company to avoid the current crisis?
http://www.fpif.org/fpiftxt/5231