The Battle for Pemex: a Mexican Oil Worker Explains Energy Reform

Mexican Congress approves light reforms for the state oil company; legislators vow to continue the campaign to privatize Pemex

by Kristin Bricker

Mexican Congress approved light reforms to the state-owned oil monopoly Pemex at the end of October 2008. While the details of the reforms have still not been published in the government’s Official Diary of the Federation, details are trickling out through the media.

The biggest reform reported so far assigns specific blocks of the Gulf of Mexico to private companies to drill and explore. Private companies have been allowed to explore and drill in the Gulf of Mexico for years, but this is the first time they’ll have exclusive rights to specific blocks. This was one of the more contentious parts of the new laws, with opposition leader Andres Manuel Lopez Obrador calling for language specifically barring the government from assigning exclusive blocks to private companies. He sees this practice as an initial step towards further privatization of Mexico’s oil industry. However, Energy Secretary Georgina Kessel argued, "If we're drilling a well in one particular area, we can't allow somebody else to come along and do drilling in the same area."

Other significant reforms are the addition of 4 independent members to the company's board of directors and bonuses for companies that finish projects ahead of schedule or pass on technology to Pemex.

The reforms provoked tepid responses from the international private petroleum industry, which was hoping for sweeping changes to Mexico’s energy sector.

The new laws are a minor setback for President Felipe Calderon and his National Action Party (PAN), which called for the privatization of Pemex in April. Calderon wanted to allow private companies to build and own refineries and transport oil. The Institutional Revolution Party (PRI) supported the PAN's efforts but refused to call the proposed reform "privatization" during an election season.

Despite the setback, lawmakers vow to continue the campaign to privatize Pemex, which would require constitutional changes. Sen. Carlos Lozano of the PRI told Reuters, "Constitutional changes are not on our agenda right now. It is a three-year agenda."

The business community seems to agree that while the new laws don’t change much, the fight to privatize Pemex is not over. "What they've passed is just an affirmation of the status quo," said energy analyst George Baker. "They're a place-holder for real market-oriented reforms."

The one thing the entire country agrees upon is that Pemex is in dire need of reform; the question is what kind of reform. Pemex's infrastructure is on average 25 years old. Pemex's refining capacity is severely insufficient. Overall production has fallen at least 10% over the past year.

Laura Carlsen of the Center for International Policy's Americas Program argues that government officials have sabotaged Pemex in order to pave the way for privatization:

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.... [M]uch 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. 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. Why wasn't that money reinvested in the oil company to avoid the current crisis?

The bleeding of Pemex was a conscious administrative and political decision, for two reasons. First, the funds siphoned out of the petroleum behemoth masked the real state of the Mexican economy. The Treasury Ministry used Pemex income, and especially the windfall profits of the past few years that are not earmarked in the congressionally approved budget, as a petty cash box. Much of this money went to pay off foreign debt. Some of it disappeared into corruption such as the "Pemexgate" case that diverted funds to support the PRI presidential candidacy. And much of the rest ended up in presidential pet projects. Successive administrations bled Pemex for political aims and with little or no accountability to Congress or the Mexican people.

Second, neoliberal administrators intentionally sought to create a dismal outlook for the state-owned enterprise to strengthen their difficult case for privatization. Only by presenting a doomsday scenario could they hope to pass the key legislative reforms regarding the oil industry that would finally fulfill the objectives for structural reform envisioned by the World Bank, the U.S. government, and Mexico's neoliberal leaders.

The battle for Pemex is far from over. Energy is a central component of the Security and Prosperity Partnership (SPP), which is led by a group of thirty corporations—including Chevron Texaco, Sunoco, and ExxonMobil. The SPP calls for North American energy integration. Other corporations behind the SPP include several transport companies who have undoubtedly been salivating over the prospect of opening oil transport in Mexico to the private sector through Calderon's energy reform.
These corporate and neoliberal actors will not let up their pressure to privatize Mexico's oil, and neither will conservative forces in Mexico. The political parties' rhetoric about energy reform has been intentionally confusing as different actors clamor for financial and political benefits. Just before Mexican Congress considered the new reforms, journalist Kristin Bricker sat down with Eduardo Gomezcaña Morales, former Pemex worker and current economist for the National Union of Trustworthy Petroleum Industry Workers, a Pemex workers' union, to understand what is really at stake in the continuing debate over the future of Mexico's oil reserves.

Bricker: Can you explain PEMEX's current situation? What parts of Mexico’s petroleum industry have already been privatized and what's still public domain?
 
Gomezcaña Morales: There's been a lot of debate over what exactly is "privatization." So let's look at a dictionary. Privatization is converting something that used to be monopolized by the government—what we know as "public"—into a private entity.

Since 1974, they've been going about privatizing some substantive parts of the petroleum industry. In that year Mexico began to export crude oil. Before 1974 Mexico produced petroleum for domestic benefit, for domestic consumption. Because the United States was no longer receiving petroleum from the Arabs, and because US oil production peaked in 1970, the United States thought it necessary to bully the small countries, the underdeveloped countries, countries in the Global South, with the goal of attracting petroleum and the production of that product. So, in 1974 Mexico began overproducing petroleum in order to sell it to the United States. With strategic and financial objectives, this set off the process of privatization.

In subsequent years came the process of privatizing substantive activities like petrochemicals. Petrochemicals were the spearhead for privatization.

Beginning with [former president] Carlos Salinas de Gotari, the neoliberal governments broke down the classification of petrochemicals into primary and secondary products, which is a degradation because these classifications don't exist in reality. So with this new classification, in 1985 sixteen petrochemicals were classified as secondaries with the objective of evading the Mexican Constitution. The Constitution said that the State was responsible for regulating the primary products derived from petroleum. So they converted them into secondary products so that private interests could begin to produce them. The next year they reclassified 32 more as secondaries.

This caused a resistance movement in the 1980’s that managed to halt this process, and they returned the petrochemical-producing activities to Pemex, but without any restructuring. They bought a couple of refineries which are now obsolete, and others which still haven't been used to date. They remained intact after they were installed. They haven't maintained them, they haven't monitored them—they haven't even used them. So what the neoliberal government did was [through neglect] provoke a situation in which Mexico was converted into a country which imports petrochemicals [due to a lack of refining capacity].

After this came the process of the privatization of natural gas. During the first phase, gas was classified by Pemex as a basic [or primary] petrochemical. The transportation of gas through pipelines was granted to private companies. As oil workers all over the world know, pipelines require rigorous protection. For example, they require maintenance, they require pigging [specialized inspection and removal of residue from the interior of the pipeline]—activities which the private companies who received the concessions are not doing. So these companies charge for delivering the product, but they don't maintain the pipelines. Because Pemex maintains the other pipelines that accompany the natural gas pipelines, we have to maintain the natural gas pipelines, too. So really it's a gift to the private companies.

Next comes the concession of the right to supply homes with natural gas to French and Spanish companies, first in Mexico City and then in other cities like Guadalajara and Monterey, and they're gradually moving on to others.

So in this way they went about modifying Article 27 of the constitution so that private companies could market natural gas. But administrations like [former President Vicente] Fox's are more cynical. They began to create activities that transnational companies could carry out. So now we're not just talking about Mexican private companies, but also international ones. In 2000 Fox launched public bidding for the exploration, production, and marketing of the country's natural gas, specifically in the Burgos Basin. In the Burgos Basin case we've brought suit against Repsol and the other four contractors involved, because this is clearly privatization. They want to fool the nation and the world by saying that this is not a case of production, but they're the ones who take the gas out of the ground. They don't call it "production;" they call it "development." They're the ones who are marketing the gas. There's a contract that was just publicly announced where Repsol wants to sell natural gas from our Burgos Basin to Peru.

So it's pretty obvious that the process of privatizing the petroleum industry has been going on for a while now. Now Calderon is following this pattern. Calderon is promoting privatization in order to justify all of the irregularities that previous administrations committed, in order to legalize this whole process that I've discussed, in order to erase the wrongdoing. But [the privatization] is already done.
On the labor front, Calderon is also trying to lay off 30,000 workers with a project he's launching that's just coming to light now called the SUMA Project[1]. Right now we're a workforce of 140,000 petroleum workers.

Bricker: Can you explain the center-left Democratic Revolution Party's role in the debate?

Gomezcaña Morales: The problem in our country is that the PAN and the PRI (which controlled the country before the PAN) have a majority in the Chamber of Deputies [Mexico's lower house]. So we're depending on the PRI to accept or not accept Calderon's proposal.

The PRD [Democratic Revolution Party] has a nationalist proposal. There's a big problem within the party right now. The PRD is very divided. Because it wants to co-opt the government, there was a fear that the PRD members of congress would vote for privatization.

Within the PRD there is a nationalist block. The PRD's Andres Manuel Lopez Obrador is the leader of the movement to defend the petroleum industry. Independent of the political bubble that Lopez Obrador is operating out of, he's the only one who's had the good sense to lead a social movement—which is the strongest social movement in our country—in defense of the nationalization of petroleum.

He's doing this in the margins of the PRD. The PRD supposedly has a project together with the FAP [Broad Progressive Front, a coalition of center-left parties], but Lopez Obrador is out there on his own, with the followers he has. But it's the only resistance there is right now.

Lopez Obrador has a good proposal, but it's really his proposal, and not the PRD's. The PRD's proposal together with the rest of the FAP parties—Convergencia and the Worker's Party—isn’t as good as Lopez Obrador's. We support Lopez Obrador's proposal as the only form of defense. The Mexican people support that proposal, and we're hoping it can stop the privatization.

We collaborated on Lopez Obrador's proposal. Even though we're not affiliated with a political party, we did send them a couple of proposals. The proposal is that everything belongs to the state, and that the industry be divided up into strategic areas, and not into service areas or potentially marketable areas. Energy should be what guarantees our country's development. Energy should be part of a national strategic purpose. We don't have to treat it like a resource we can sell. It's a resource for our own nation.

In all of the proposals that have been made, they discuss primary production, exploration, and marketing. All of the proposals are along those lines. There's no need for private companies to get involved in those areas. There's nothing in those about bringing petrochemicals back under national domain, that there be resources for exploration, that maintenance has a sufficient budget so that it can actually be carried out, that refining be increased...

There's a trick going on in our country. The government is using television to make a strong attack. Their ads say, "We want refineries." We do, too! They're appropriating our strategies and slogans, using the same words we use. We want refineries, but we want Mexican refineries. We don't want another Telcel[2]. We don't want Mexico to get sacked again.

If we observe the gas stations that are in Guatemala, El Salvador, and in Honduras, they don't have the minimum security standards that we have in our gas stations in Mexico. And why is that? Because this resource is under the State's control here.

Some of the security standards that we have that don’t exist in Central American countries are, for example, gas pump vapor recovery systems which recover gas vapors so that they don’t pollute the air. This system does not exist anywhere in Central America. The distance between the tank where the gas is stored in the station and the pump is very far. This leads to pollution. In Central America they also don’t have concrete or metal posts to protect the pump if a car loses control and crashes into the station. There’s gas all over the ground in all the gas stations there; in Mexico they get fined if they leave gas on the ground. They’re security measures that they’re not taking. Why? Because Texaco doesn’t let them, Shell doesn’t let them, because Exxon doesn’t let them. All of these companies operate in the margins of the law in these countries. They’re companies that have the power of transnationals, the power of the United States, the power of the great super powers. Given the circumstances, we wouldn’t be able to force them to abide by our laws.

Bricker: How is the privatization of Pemex linked to Plan Puebla Panama, now known as the Mesoamerica Project, and US hegemony?

Gomezcaña Morales: I think Mexico is a laboratory. It’s a neoliberal strategy that goes beyond Plan Puebla Panama, aka the Mesoamerica Project. Mexico isn’t just Puebla and what’s south of that state. In all of the Mexican states there’s privatization, which they want to use as an example for what they’re going to apply in the rest of the world. If they manage to advance in the area of petrochemicals here in Mexico then they’re going to be able to advance petrochemical projects in Costa Rica[3]. If they manage to privatize the refineries in Mexico, then they’re going to be able to start the process of privatizing Costa Rica’s refinery. It’s every clear that they’re carrying out experiments.

In the United States there’s a refinery called Deer Park. Pemex supposedly has a 50-50 stake in the refinery along with Shell Oil. According the Pemex annual reports, to date we haven’t received a single dollar, not a single Mexican cent, for this investment.

I imagine that if Shell were to come to Mexico to build refineries, that Mexico would hand over our petroleum to Shell in our very own country, and that it would sell us the finished product at a very high price, at a price on par with the international market.

This is the experiment that they want to apply all over Latin America. This is why Fox insisted so hard on investing in a refinery in Costa Rica, because it’s part of Plan Puebla Panama. They want to be able to replicate experiments like that all over.

Bricker: How do you respond to politicians’ statements in the media that Mexico is running out of petroleum, so Pemex needs to be privatized before this happens?

Gomezcaña Morales: Peak oil is a reality. Peak oil is petroleum’s downfall. This year we’ve hit peak oil at a global level—we’ve reached the zenith, and now comes the drop in petroleum reserves. We’re seeing this in Mexico. Mexico will stop producing petroleum. We’re not finding new oilfields. We’re already experiencing a strong decrease in petroleum reserves globally.

The problem is that there aren’t alternative projects. The few projects that exist that are searching for alternative energy sources are redundant. Foreigners are carrying out these projects. It’s written into Plan Puebla Panama that in the case of Mexico's wind power, instead of the [state-owned] electric company[4] having the responsibility to invest in wind power projects, they grant the right to install windmills in this zone to foreign private companies like Spain’s Repsol. It’s our wind, even though that sounds a little abstract. The profits won’t be for Mexico. The profits are for the foreign companies. Repsol doesn’t even have the infrastructure to carry out these types of projects. Repsol subcontracts the work to other foreign companies, just like Halliburton does. And they keep granting these projects to Repsol and Halliburton because the neoliberal governments—like Mexico’s—allow it.

Something else very important is going on in Mexico. No other country would permit the conflict of interests that exists in the Mexican Ministry of the Interior (Segob in its Spanish initials). Felipe Calderon’s little pet Juan Camilo Mouriño [the current Secretary of the Interior] has a conflict of interest in our country’s energy sector.[5] He’s Spanish. So he’s promoting Spanish investment in our country. They have vested interests here.

To sum it up, there are two completely different projects here: the Global South’s project and the North’s project. Those of us from below, and the powerful. Those of us who defend all of our resources—one of them being petroleum—from projects like Plan Puebla Panama, and those who want what’s ours.

Footnotes:

[1] Project SUMA is a plan hatched by the United States and Mexico to “synergize” Pemex’s operations. The National Union of At-Will Petroleum Industry Workers says it would lay off workers and reduce Pemex to a company that merely manages contracts and investment portfolios in the Mexican petroleum industry. It would also do away with Pemex’s Corporate Office for Engineering and Project Development, ostensibly to hand over control of project engineering and development to the private sector. The union estimates that between 30,000 and 60,000 workers would be laid off under the project.
[2] When the Mexican government privatized the national telephone company, Telmex, it sold the monopoly to Carlos Slim, who, thanks to the benefits he received from privatization, went on to become the richest man in the world.
[3] Costa Rica also has a state-owned oil company, Recope.
[4] Electricity is also nationalized in Mexico under the government’s Federal Electricity Commission (CFE in its Spanish initials).
[5] In 2002 and 20003, while working as an aid to then-Secretary of Energy Felipe Calderon, Mouriño signed at least three energy contracts as an official representative of his father’s Mexican transportation company Transportes Especializados Ivancar. The contracts were for services provided to Pemex. Andres Manuel Lopez Obrador, who presented the contracts to the media, said, “He obtained million-peso contracts by directly awarding them in order to benefit his family business.”