Calderón’s Privatization Plan for Mexico’s Oil

A story that has been bubbling up in Mexico finally has made its way back to the surface in the U.S. news. The New York Times reports State oil industry’s future sets off tussle in Mexico.

A bitter debate over what to do about Mexico’s ailing state oil monopoly has dominated national politics here in recent weeks, tapping strong emotions on both sides and resurrecting the political fortunes of the leftist leader who narrowly lost the 2006 presidential election.

The corporate framing is immediate in the opening graph of the story, but that’s not unsurprising from the NY Times. What is surprising is that normally stories from Mexico do not often make the news in the United States. This story is different, because: “At stake in the debate is not only the future of the Mexican economy but also the supply of oil to the United States.” Even news from Mexico is framed by the interests of the United States. As of 2007, Mexico still had an estimated 12.4 billion barrels of untapped oil reserves, or 10 percent of the world’s crude, according to the U.S. Energy Department.

Felipe Calderón, Mexico’s conservative president and former economist, and his ruling National Action Party (PAN) want to privatize PEMEX or Petróleos Mexicanos, Mexico’s state-owned petroleum company. This may be difficult, because, as the NY Times explains:

Ever since President Lázaro Cárdenas nationalized the oil industry in 1938, Pemex has been politically sacrosanct. Taking the oil fields back from foreign companies marked a high point in Mexican history. It was one of the few times Mexico’s leaders stood up to business interests here and in the United States on behalf of the Mexican public.

Calderón contraversally became president in a close election in 2006 over Andrés Manuel López Obrador, the former mayor of Mexico City and then-leader of the Party of the Democratic Revolution (PRD). He “has called any private investment in Pemex a threat to national security and has accused Mr. Calderón of secretly seeking to sell off the industry to private investors”. While Calderón argues the opposite, he claims PEMEX is broke and must be privatized to increase production and exploit deepwater oil fields discovered in the Gulf of Mexico.

However, López Obrador thinks the state mismanagement of Mexico’s oil industry was done deliberately. The ruling parties’ use of PEMEX as their own private bank has created the problem. Instead of investing in the national corporation, the bulk of PEMEX profits were spent (or looted) elsewhere. Now the right claim privatization is the only solution for PEMEX’s current problems. In an interview, López Obrador said:

“The government, for 25 years, has acted in a deliberate manner, on purpose, to ruin Pemex because they have only one goal, to make Pemex into booty to be plundered and privatize the oil business.”

According to a story in the People’s Weekly World, Mexico readies for battle on oil privatization, privatization has already begun.

It appears that the shell of the state oil company, PEMEX, would be preserved while one function after another is contracted out to major international monopolies. This way Calderon could claim he is not privatizing PEMEX, just partnering with outside private enterprise to expand and modernize its operations — while in reality privatization goes ahead full blast.

Earlier, Mexicans were shocked to hear that huge contracts to carry out central functions of PEMEX have been contracted out to the U.S. monopoly Halliburton, including drilling of new wells and maintaining pipelines. One reason Mexican public opinion has opposed privatizing PEMEX is the fear that this would be the foot in the door for yet more foreign interference.

Of course international investors and U.S. and European oil interests keenly back Calderón’s plans to take the oil away from the people and give it to the corporations. This is the model for disaster capitalists. Create a problem then claim the only solution is the private sector. A post-Calderón PEMEX would be a hollow company that hands out rich contracts to private sector companies like Halliburton and Schlumberger.

The oil corporations, too, see great profit potential in Mexico. A story in Bloomberg News reports that Chevron is pushing Mexico to open oil fields to outsiders.

Chevron, which triggered the Saudi energy boom with the 1938 discovery of oil in the kingdom, wants to make Mexico “a big part of our portfolio,” with Brazil and African producers such as Nigeria and Angola, said Ali Moshiri, who oversees the company’s oil and gas wells in Africa and Latin America…

“The biggest problem in Mexico is Pemex,” Moshiri said. “Pemex needs to be more pro-active and say, ‘We have a lot on our plate and we need help.’ The constitution needs to be modified to reflect today’s environment.” …

Mexico… is missing out on billions in investment dollars from Chevron and other international oil companies, Moshiri said.

If Mexico allows for the nation’s oil industry to be privatized, then the Mexican state would most likely lose revenue as it is funneled away into private corporations and Mexican workers would lose jobs as those jobs are funneled away to inexpensive employees of the oil corporations and subcontractors. With the privatization of PEMEX, the corporations will get the public investment to build and maintain Mexico’s future oil industry. If Calderón follows the American model, then delivering those fat government contracts will be rewarded by campaign contributions and huge speaking fees after retirement from politics.

Calderón has moved forward with his plans. According to the Los Angeles Times, Calderón seeks to overhaul Pemex.

Under the proposals announced Tuesday, Pemex would be granted greater control over its finances and greater freedom to sign contracts with private companies.

Mexicans would be able to buy “citizen bonds” in Pemex, he said. And the company would be allowed to make alliances with outside experts in the deep-water drilling necessary to expand the country’s oil reserves…

But López Obrador said Calderón’s proposal amounted to a back-door privatization of Pemex.

“That’s how they privatized the electric utilities,” López Obrador said. “And now 35% of the industry is owned by foreigners.”

I think López Obrador is right to be suspicious. The offering of “citizen bonds” in Pemex, look to be similar to the company shares Prime Minister Margaret Thatcher offered the British public when she privatized the state-owned monopolies, such as British Telecom. According to The Guardian, A whole world sold on sell-offs —

In her memoirs, the former prime minister evocatively described the sale of state assets as essential to “eroding the corrosive and corrupting effects of socialism”. Yet five years after she left office, a star was created out of a 30-stone pink and black pig named Cedric, who was to come to symbolise corporate excess with its snout buried in the “trough of privatisation”…

Unsurprisingly, Lady Thatcher and her teams of politicial and financial advisers prefer not to dwell on the boardroom self-enrichment that followed privatisation, arguing instead that there were beneficial effects for the wider economy.

López Obrador thinks the way to fix PEMEX is to go after the company’s waste and corruption. In the NY Times story, he said “Pemex’s principal problem is corruption, and that is not something that was brought even up in the government’s diagnostic report… Imagine if you diagnose a sick person, and you don’t mention the principal problem. You cannot prescribe anything.”

The problems of PEMEX are not just limited to corruption, dwindling sources of oil to pump are also a challenge, but without addressing PEMEX waste and corruption, Calderón’s plan will enable the transfer of wealth and capital to the private hands. As noted with the British privatization experiment, “boardroom self-enrichment” is overlooked by privatization proponents as are the many people employed by the nationalized industries who lose their jobs.

According to the Catholic News Service, Calderón’s government is busy at work on the Roman Catholic Church as Mexican bishops pulled into controversial oil debate. “Interior Secretary Juan Camilo Mourino met behind closed doors with senior church officials… Both the bishops and Mourino’s office reported that the secretary said energy reform was urgent for Mexico’s future prosperity… In the meeting between Mourino and the church officials, the secretary also discussed the issue of religious freedom, according to the bishops and the government.”

It seems Calderón is offereing “to give clerics greater rights in the public sphere, overturning Mexican laws dating back to the revolution that ban the church in public education” in exchange for their support for privatization of the nation’s oil industry.

So will Calderón get his way? Will Mexico privatize its oil industry?

Calderón’s privatization plan may be a difficult sell to the Mexican Congress. According to a Reuters story about Mexico energy reform debate. PAN, the ruling party of Calderón, “expects to present a reform bill on Wednesday or Thursday, after weeks of talks in the Senate energy committee failed to reach a multiparty consensus” including Energy Minister Georgina Kessel canceling a meeting with a meeting with lower house speaker Ruth Zavaleta of PRD. While, Sen. Francisco Labastida, of the former ruling party Institutional Revolutionary Party (PRI), sees it “very difficult” for the “energy reform proposal” to be passed by Congress before the end of the session on April 30th.

Interestingly there is this parallel story to Calderón’s efforts to privatize PEMEX. Last week, the AP reported, Mexico condemns Chávez move to nationalize cement industry.

Mexico’s finance secretary on Friday condemned Venezuela’s decision to nationalize its cement industry, whose largest operator is the Mexican company Cemex. Finance Secretary Agustín Carstens told a news conference that President Hugo Chávez’s order is “an inappropriate action that does not respect the property nor the rights of Mexicans.”

The rights of Mexican corporations is what Carstens really meant. Cemex, of course, is not a state-owned industry and its stock is traded on the NYSE. The Calderón government clearly does not support nationalized industry in Venezuela or Mexico. Combined with Calderón’s own anti-drug war and his support of NAFTA, Milton Friedman would be proud of him. But the question remains: will Mexico’s Congress pull the trigger and kill PEMEX?