Whither PEMEX?

PEMEX (Petr???? ³leos Mexicanos) is the world’s fifth-largest oil company.

It is protected from competition in Mexico, where it enjoys a legal monopoly on the exploration, processing and sale of petroleum. And its privileged status in national mythology affords it a certain immunity from criticism.

PEMEX is also in deep trouble. It’s heavily-indebted and unable to provide the capital necessary to locate and exploit Mexico’s oil deposits. Energy Minister Felipe Calderon recently announced that, without more investment, Mexico’s known reserves could be depleted within 13 years.

This wasn’t the future envisioned by President Lazaro Cardenas, who expelled the foreign oil companies and founded PEMEX in 1938, to give Mexico’s oil to “the people”.

The date of the “Expropiaci???? ³n Petrolera” (Petroleum Expropriation) is commemorated annually.

The Mexican Constitution (Article 27) guarantees PEMEX’s privileged position, a monopoly over the oil industry, from exploration to the sale of gasoline at the pump.

PEMEX service stations, with their familiar green signs, dispense gasoline nationwide to the captive Mexican consumer. Sure, the prices are high, sometimes the fuel is watered down, and sometimes it damages car engines. But such are the privileges of socialized oil in Mexico.

Even Cuba has a more liberal petroleum policy, allowing foreign companies to exploit offshore oil. PEMEX does subcontract out some work to private (even foreign) companies, but that isn’t solving its undercapitalization problem. Yet, for a Mexican politician to call for petroleum privatization is to risk being branded a “vendepatria” — of selling out the fatherland to the gringos.

The principal contradiction for PEMEX is having to function as both an oil company and a government bureaucracy.

In fact, it functions as a national tax collection agency – 60% of its revenues are turned over to the government, thus unavailable for oil exploration and exploitation. Only 18% of Mexico’s territory has been properly surveyed for petroleum deposits.

Then there’s the lack of refineries. The United States has 149 operable oil refineries. Mexico, with about a third of U.S. production, has only 6. PEMEX is prohibited from partnering with foreign companies within Mexico, but not abroad. So Mexican crude is shipped to Houston, Texas, where it is refined (in partnership with Shell) and then re-imported to Mexico.

And since its vast natural gas fields can’t be properly exploited, Mexico is a net importer of natural gas from the U.S.

Ironically, socialized petroleum makes Mexico more dependent – not less – on the United States.

Not only is PEMEX inefficient, undercapitalized and utilized as a golden goose by the government, its existence exacerbates corruption. In the 2000 election, PEMEX funds wound up in the coffers of the PRI (then ruling party) candidate.

Mexican pundit Sergio Sarmiento summarized the situation thusly: :

“….PEMEX….supposedly property of all Mexicans….has only served to benefit the government, the political elite and the petroleum union.”

President Vicente Fox has failed to alter the petroleum status quo, and has even vowed not to privatize PEMEX. Fox does want to open it to foreign investment, and that’s controversial enough. Any form of privatization provokes strong opposition in the Mexican Congress among the opposition PRD and PRI (the former ruling party).

But a faction of the PRI is open to petroleum privatization.

In 2002, PRI leader Roberto Madrazo actually proposed selling part of PEMEX through stock offerings.

Fox could negotiate with this faction of the PRI to achieve a viable privatization proposal, in the manner that Ronald Reagan built a coalition with a faction of the Democratic Party.

Instead, Vicente Fox has invested too much time and energy in opening the U.S. border to Mexican emigration, and not enough time and energy in building a Mexico which can provide for its own citizens.

It may be too late for Fox, who has expended much of his political capital.

The media is already sizing up candidates for the 2006 presidential election. Fox’s PAN party may lose that election.

And yet, it’s not impossible that a pragmatic president of the left may be able to privatize PEMEX.

If carried out properly, petroleum privatization would greatly aid Mexico’s development, and maybe even reduce poverty.

Increased Mexican oil production would be good for the United States. We could buy more oil from Mexico and less from the totalitarian House of Saud and other Middle Eastern tyrannies.

But U.S. pressure to privatize PEMEX is highly suspect and counter-productive. Many Mexicans believe the U.S. invaded Iraq to take its oil. American pressure strengthens Mexican opponents of privatization.

Mexico’s oil must be privatized by its own leadership. When a Mexican politician courageously articulates the case for petroleum privatization, based on Mexican interests, real change may be at hand.