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Privatizing Pemex, the push to

U.S. International Policies

For background read articles on the IMF and World bank and their push for globalization. 


In these times at http://www.inthesetimes.com/article/3678/the_push_to_privatize_pemex/


The Push to Privatize PEMEX

By Jessica Pupovac, News > May 12, 2008

Halliburton is licking its chops at the prospect of Mexico’s state-owned Petróleos Mexicanos going private.  Petróleos Mexicanos, or PEMEX, withstood a tsunami of privatizations of formerly state-owned companies in the late 1980s and ’90s. But now, with pro-business President Felipe Calderón in office, the effort is being revisited — and the Mexican left is coming out en masse to defend the 70-year-old company, a long-time source of national pride and a symbol of Mexican sovereignty.

On April 8, Calderón, who served as energy secretary under former President Vicente Fox, proposed a reform package that calls for forging “strategic alliances” with private oil companies and opening 37 of PEMEX’s 41 divisions to private subcontractors. Although Calderón carefully specified that the reforms would not amount to privatization, many in Mexico are not convinced. The Mexican Constitution forbids private drillers from reaping profits from oil discoveries under Mexican soil.

However, PEMEX already subcontracts limited operations to outside companies, Halliburton being chief among them. But currently, these subcontractors can do little more than sell their labor, technology and expertise to PEMEX at a fixed price.

George Baker, publisher of Mexico Energy Intelligence, a trade publication that covers energy markets and policy developments in Mexico, says this stipulation limits the desirability of PEMEX contracts.  “What [oil companies] are interested in is barrels of oil, the value of which could double in the near future,” Baker says. “If you just pay me in cash, it just goes into the cash register. It doesn’t go into my bonus or the stock price or increase my reserves.”

That’s why Calderón is proposing to sweeten those contracts with bonuses for major discoveries, in an effort to lure the kind of skill and experience needed for the more risky, technologically advanced drilling in the Gulf of Mexico — anticipated to be Mexican oil’s next great frontier.

That proposal, however, is on political thin ice.

When Gen. Lázaro Cárdenas wrested control of Mexico’s oil fields from U.S. and British tycoons in 1938, Mexicans from all walks of life lined up to help fund the expropriation, donating family heirlooms, small handfuls of pesos, and even chickens and livestock for the cause.

Public ownership of PEMEX remains sacrosanct, and since rumors of the energy reform initiative began circulating, throngs of opponents have taken to the streets to keep their petro-pesos out of foreign pockets.

Andres Manuel López Obrador, who lost the 2006 election to Calderón by a hair (amid widespread allegations of fraud), has been at the forefront of the movement. He accuses Calderón and his predecessors of purposefully starving the beast in order to create a crisis situation, thereby leaving little option but to call the private sector for help.

“The government, for 25 years, has acted in a deliberate manner … to ruin PEMEX because they have only one goal: to make PEMEX into booty to be plundered, and to privatize the oil business,” López Obrador told the New York Times on April 8.

PEMEX’s pipelines are old and its facilities dilapidated. It hasn’t built a new refinery since the ’70s and, as a result, lacks sufficient oil refineries to process its crude. PEMEX currently sells 1.4 million barrels of crude oil per day to U.S. companies that then refine it and sell it back to Mexico. Making matters worse, since 2004, the country’s oil fields have been drying up.

Added to this already dire situation is a powerful and corrupt Mexican Oil Workers Union, infamous for no-show jobs and major fund transfers to dirty politicians, including an alleged multimillion dollar pay-off to the gubernatorial campaign of Francisco Labastida, the current head of the Senate Energy Commission. The confluence of these factors has put PEMEX and the government — which relies on the company’s revenues for nearly 40 percent of the federal budget — in a pickle.  {Great idea, public ownership of our resources.  How much lower our taxes would be!}

Part of Calderón’s proposal would increase transparency in PEMEX by adding independent members to its Board of Directors and establishing an independent auditing system. But privatization opponents, including López Obrador, say that should happen before any private solutions are considered.

“If they want to move ahead with PEMEX, first they should fully combat corruption,” he said during an April 4 speech. “PEMEX as it exists is in ruins.”

A group of lawmakers organized as the Broad Progressive Front began pushing for more public involvement and congressional debate on the very day Calderón introduced the proposal, fearing he would fast-track the initiatives before his April 21 trip to the North American Security and Prosperity Partnership summit in New Orleans. The lawmakers took over both houses of the Mexican Congress for more than two weeks, camping out in pup tents by night, leading massive rallies outside by day, and standing guard in shifts so that their conservative colleagues couldn’t sneak in and push forward a vote.

On April 25, they secured an assurance that the reforms will be debated for at least 71 days, beginning on May 13 (after In These Times went to press). In the meantime, the opposition is organizing a nationwide canvassing campaign.

“We are all in this movement,” Rep. Alejandro Sanchez Camacho said in an April 24 release. “Women and men who want to preserve our inheritance that our grandparents left us, which is our petroleum.” 


Petróleos Mexicanos (PEMEX) is Mexico's state-owned petroleum company. It is the 10th largest oil company in the world in terms of revenue and ranks 42nd on the list of Fortune 500 companies.  In 1938, President Lázaro Cárdenas sided with oil workers striking against foreign-owned oil companies for an increase in pay and social services. On March 18, 1938 citing the 27th article of the 1917 constitution, President Lázaro Cárdenas embarked on the state-expropriation of all resources and facilities, nationalizing the U.S. and Anglo-Dutch operating companies, creating PEMEX. In retaliation, many foreign governments closed their markets to Mexican oil. In spite of the boycott, PEMEX developed into one of the largest oil companies in the world and helped Mexico become the fifth-largest oil exporter in the world.


PEMEX is the sole supplier of all commercial gasoline (petrol/diesel) stations in Mexico. All petrol stations, although labeled PEMEX, are concessions that are strictly full-service. PEMEX tried to take away the concessions from a large number of these for low-quality gasoline (often cut with up to 40% fuel oil) and for not serving the correct amount of gasoline (many serve only 9 litres for every 10 registered on the pump), however a judge ruled these were "not reasons to take away the concessions".  {So that is why my catalytic convert quit after my last trip to Mexico—jk).


Despite its current $77 billion in revenue, PEMEX pays high taxes that contribute with a large portion of the budget of the federal government. In recent years the company has only been able to make ends meet through massive borrowing, so that it now owes a staggering $42.5 billion, including $24 billion in off-balance-sheet debt because the Mexican government treats the company as a major source of revenue,  The state-run company pays out over 60% of its revenue in royalties and taxes, and those funds pay for two fifths of the federal government's budget. In 2005, with record-breaking oil prices, the company has seen an unexpected excess of funds. This trend continued in 2006, but these funds have been used to pay salaries of bureaucrats and current costs, instead of being invested in projects of exploration and production; during the President Fox administration, these funds represent around 70 billion dollars,[2] yet the administration says there is not enough money to pay the debts.


President Calderon made clear at the beginning of his presidency that he would respect the constitutional mandate to keep Pemex in government hands, but that he would try his best to open up the sector to private investment.[6]



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