Guest Column
Mexico fails to capitalize on the oil windfall
- By Kenneth Emmond
- Miami Herald/El Universal Mexico
- December 05, 2005
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- Kenneth Emmond is a freelance journalist and economist who has lived in Mexico since 1995. Kemmond00@yahoo.com
- Article at: http://www2.eluniversal.com.mx/pls/impreso/web_columnas_sup.detalle?var=27025
A glance at trade figures for the world's oil exporters tells you that a massive redistribution of global income is underway — from the treasuries of oil-importing nations to those of the exporters.
Sales by oil exporters — countries like Russia, Norway, and Mexico as well as members of the Organization of Petroleum Exporting Countries (OPEC) — will be about US$700 billion dollar this year. The International Monetary Fund projects their collective current-account surplus at about US$400 million.
So much money is pouring into these countries that deciding how to invest the bounty wisely is a challenge. Should it be spent on national development? Exploration and development? What about a rainy-day fund for the time when the wells run dry?
Sadly, instead of sharing this delightful dilemma, Mexico's energy sector is the sick man of the world petroleum industry.
Despite record revenues, Petroleos Mexicanos (Pemex), the national oil and gas monopoly, is teetering on bankruptcy, its debts equal to its assets, according to General Director Luis Ramíirez. Exploration is being cut back although proven reserves are shrinking at an alarming rate. Mexico might be an oil importer within a decade. There is neither money nor technology to probe the deep waters of the Gulf of Mexico, where geologists believe another huge oilfield awaits them.
What went wrong? More important, what can be done to reverse this alarming trend?
Put succinctly, the problem is that so many interests, legitimate or otherwise, have tapped into Pemex that there is nothing left for managing for the future.
First in line is government. Far from funding special projects to move the country forward, Pemex provides about one-third of general revenues — money the government uses just to operate. That's like spending one's inheritance on groceries.
Federal and state governments quarrel over who should pocket the recent windfall revenues. Either way, they're leaving Pemex to flounder without enough funds for its operations.
There are individual hands in the till. Stories abound, with varying degrees of documentation, of sweetheart contracts, unauthorized benefits to senior executives and their friends, and famously in 2000, a billion-peso contribution to a presidential election campaign.
Pemex has always been a secretive organization, replete with slush funds and offshore companies that few people know about. There is minimal accountability to monitor the comings and goings of its billions of dollars.
It's known that millions of liters of gasoline are siphoned out of the system and sold privately, at an annual cost of about US$2 billion.
One should not forget the union. The interests of the leaders are much better cared for than those of the workers, though there's enough money sloshing around that union members benefit from Pemex largesse as well.
Romero Deschamps, whose name is closely linked to Pemexgate, the petro-pesos-for-the-PRI megascandal in 2000, was recently re-elected as head of the petroleum workers' union. Since he is also a member of the Chamber of Deputies he remains immune from prosecution.
Incompetence plays a role too. Pipeline maintenance, for example, has been given low priority for many years. Frequent news stories of oil or gas leakages, sometimes involving injury or loss of life and property, are the legacy of past mismanagement.
Arguably the biggest boondoggle of all is nationalism. It's a fine and noble goal, but it's hard to keep a straight face when hearing politicians declaim that Pemex is the company of the people and there should be no role whatsoever for outsiders.
These politicians never talk about the implications of their hard-line posture: that deep-water exploration won't be carried out, that gas exploration might not take place at all, and that Mexico's oil wells might run dry while they are busy protecting their sovereignty.
Is there hope that Pemex might be rescued from this quagmire and join the worldwide celebration of oil profits? There is, but it will require unprecedented goodwill from politicians in the next Congress. They must address five issues.
Above all, they must give their national treasure room to maneuver. They can do this by letting it keep enough revenue to operate as a viable oil company instead of, as billionaire Carlos Slim says, a miscellaneous cash box.
Meaningful tax reform would reduce the temptation for politicians to deny Pemex a chance for a decent return. Labor reform would allow workers to choose leaders with their interests in mind, instead of those of a political party.
A robust anti-corruption program combined with equally robust audits of the company's every nook and cranny would help Pemex earn and keep money from every barrel of oil produced.
A merit-based system for appointing senior management would provide new opportunities for increasing efficiency.
Perhaps the highest hurdle of all is a more pragmatic approach to nationalism. Mexico doesn't have to give up control over its petroleum resources to allow outside capital and expertise to help it find and develop reserves. It might require some hard bargaining, but before it can bargain it needs parliamentary consensus.
Some of these measures are either in the works or proposed as legislation by the present administration. Whether they succeed depends on whether the politicians of today and a year from now realize the urgency with which Pemex needs their support.
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