Magazine article Washington Report on the Hemisphere

Pemex Needs More Than Privatization

Magazine article Washington Report on the Hemisphere

Pemex Needs More Than Privatization

Article excerpt

Later this summer, Mexican President Enrique Peña Nieto is expected to reveal an extensive plan to reform the country's state energy company Petróleos Mexicanos (Pemex). The company has experienced severe setbacks in recent years, stemming from a dramatic decline in production due to its officials' unwillingness to invest in new technology, ongoing scandals, and several major accidents that have called the company's safety record into question.

As 40 percent of Mexico's national revenue comes from Pemex, a solution must be found to address Pemex's financial troubles in order to maintain the flow of vital funds for Mexico's social welfare programs. Peña has indicated that some form of privatization will occur within the company, though the extent of this privatization has yet to be determined. Possible reforms range from simply increasing Pemex's independence to completely opening up the company for private investment. While it is important that Peña achieve some sort of reform, privatization should not necessarily be the first and only solution. In order to salvage Pemex, Mexican lawmakers must also seek to curb the excessive corruption that has become an ingrained aspect of the state oil company.

A History of Pemex: Corruption and Inefficiency

When Pemex was first founded in 1938, it was viewed as the ultimate solution to the conflict that had broken out between foreign oil companies and Mexican workers. Despite being boycotted by a number of countries for closing out foreign investment, the newly formed state oil monopoly initially thrived, growing to include 41 divisions with roughly 140,000 employees. Today, Pemex is the fifth largest oil company in the world, producing roughly 2.54 million barrels per day. However, this number is meager compared to the 3.4 million barrels per day that Pemex was producing just nine years ago. This severe drop in production is both distressing and embarrassing for a nation that once took great pride in its nationalized oil industry.

While poor productivity has only become apparent in the past few years, Pemex has, in fact, had a corrupt system in place for decades that has been rampant with fraud, theft, and other unlawful schemes. The company has long been known for its underhanded contributions to the Institutional Revolutionary Party (PRI), the powerful ruling political party from 1929 to 2000. Pemex's involvement with the PRI has ranged from setting up large slush funds for campaigns to contributing towards patronage for party loyalists. In 2000, roughly $210 million USD of Pemex funds were allegedly contributed to the presidential campaign of PRI candidate Francisco Labas- tida. Investigations of the scandal, which came to be known as Pemexgate, declared the suspected company executives innocent. Such cases have become all too common as elevated Pemex officials enjoy extreme impunity in Mexican courts.

In a late April meeting, Pemex officials recognized their own failure to curb the company's internal crime, stating that there are "grave levels of corruption in segments of the organization." The company representatives also admitted to unethical practices in their employment process. A 2003 New York Times article revealed that Pemex permits "no-show jobs," which involve people getting paid despite performing no duties whatsoever.

Diverted funds and squandered resources have resulted in widespread inefficiencies and waste. Despite being one of the world's largest producers of crude oil, Mexico still finds itself importing one-quarter of its refined oil from the United States. At present, all six of Pemex's oil refineries are running at full capacity and even so are unable to provide Mexico with the needed quantity of processed oil. At the same time, the price of gas in Mexico gradually increases on a monthly basis; in recent months, the oil-producing country has been selling oil to its own people at prices higher than what is sells to foreign countries. …

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