Mexicans cling tightly to 'their' oil monopoly

Chicago Tribune
Published Monday, June 12, 2006

BENITO JUAREZ II, Mexico -- The cocoa farmers still lie awake at night, deathly afraid of an explosion like the one that turned the sky into a fiery hell and killed eight people in this village last July.

But even here, months later, the nightmares haven't changed people's attitude about who should control Petroleos Mexicanos, or Pemex, the national oil monopoly whose natural-gas pipeline sprung a leak and ignited the inferno.

"Here oil 'belongs to the people,' quote unquote," said Amanda Sanchez Martinez, the mayor.

The mantra recited by Sanchez is one of the obstacles limiting badly needed reform in Mexico's oil industry, part of the unfinished business of President Vicente Fox and a major challenge for the presidential candidates seeking to succeed him this year.

Analysts predict that Mexico's oil reserves, second only to Canada's in filling up U.S. gasoline tanks, could dry up within a dozen years. Meanwhile, Pemex lacks sufficient money to repair antiquated pipelines and explore for more deep-sea deposits.

One solution would be outside investment. But almost all Mexicans oppose loosening their constitution to allow private or foreign interests to break the government monopoly and hold a stake in the nation's oil.

Mexicans lionize the man who nationalized petroleum in 1938, former President Lazaro Cardenas, even as they suffer through frequent electricity blackouts.

"I think we are really kind of stuck in Mexico," said David Shields, an energy analyst in Mexico City. "When you start to discuss the constitution, you never seem to get beyond that. The extremes are weakening, but there is no consensus on where we should go with energy policy."

Though he tried, Fox was frustrated in his reform efforts. His attempts at tweaking the constitution to allow equity investments in gas and secondary oil operations were barely considered by Congress.

Many Mexicans argue that there are other ways to save Pemex. First, many say, the company should clean up its notorious corruption and waste.

During the 71-year rule of the Institutional Revolutionary Party, or PRI, which Fox ended in 2000, Pemex funds were siphoned off for political campaigns. Powerful union workers still enjoy luxurious benefits. And officials say nearly every operation is vulnerable to fraud and kickbacks.

On top of that, the government takes most Pemex profits to cover a third of the federal budget for schools and other public services. Last year, Fox and Congress lowered the amount by about $2 billion a year, but analysts say more relief is needed.

Despite today's high oil prices, Pemex remains the world's most indebted oil company, in hock by as much as $85 billion. While producing 3.4 million barrels of oil a day, it imports gasoline because it lacks refineries.

"Petroleum is a cultural problem in this country," said Lorena Beauregard de los Santos, a former PRI congresswoman here in oil-rich Tabasco state. "People say 'the oil is ours,' even though it hasn't been used correctly and they don't benefit from it. It's also the culture of corruption. It's the whole problem of Mexico."

Pemex officials are more optimistic, but urge a gradual opening of the monopoly so the company can become more efficient, competitive and cooperative with investors.

In March, Mexico announced the discovery of a new deep-water reserve in the Gulf of Mexico. Company officials said it could hold 10 billion barrels of oil, nearly equal to its huge Cantarell field, where production is expected to begin declining this year.

Some experts called the announcement premature, saying Mexico lacked the money and technological know-how to exploit such a deep-water source.

"We recognize that we need to establish new mechanisms of collaboration with other oil companies with experience in deep water," said Luis Ramirez Corzo, Pemex's chief executive. "The challenges of the future are complex."

The obstacles surface in campaigning for the July 2 presidential election, with each candidate feeling compelled to begin any talk of energy reform by making clear he or she opposes "privatization" of Pemex.

Warning of "killing the hen with the golden eggs," Felipe Calderon of Fox's conservative National Action Party speaks of a limited opening of Pemex and promoting competition in energy production. But as one of Fox's energy ministers, he had no luck pushing reforms.

The PRI's Roberto Madrazo speaks of modernizing Pemex so it is not the government's "cash box" and can make "strategic alliances" with other oil companies. But his left-center party is deeply divided over private investment.

Andres Manuel Lopez Obrador, the left-wing former Mexico City mayor, opposes any opening to private interests. He says he would clean up Pemex and organize it better to create jobs and lower Mexicans' own gas prices and electricity bills.


On the Gulf Coast, Pemex's problems exploded last year in a frightening string of deaths, injuries and property damage from accidents attributed to the company's failure to maintain its 30-year-old infrastructure.

Local officials blamed the July 8 explosion in Benito Juarez II on antiquated pipelines. Pemex officials blamed it on a contractor they say damaged the pipe with a bulldozer. Either way, villagers were furious that Pemex hadn't urged them to evacuate.

"We saw flames 200 meters in the air," said Antonio Arellano Torres, 69, president of the cocoa farmers' cooperative, whose members are among hundreds demanding compensation for their losses.

After the explosion, Pemex announced a $3 billion plan to inspect and repair 900 miles of pipelines. But environmental inspectors say they have no faith that the company has a long-term plan.

Standing under his blotchy, smoke-damaged trees, Ricardo Aria de Dios, 50, said he can't afford to move from the house where his family has lived for 27 years with Pemex pipelines running beneath the garden.

When asked about Pemex's future, and his own, Aria de Dios said he couldn't imagine the government ever giving up control.

"It's the biggest company in Mexico," he said. "It means a lot of money."

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