Pemex problems

I have written several times about the quandary the Mexican government faces with its state-owned petroleum company, Pemex, which was nationalized in 1938 and has become a symbol of Mexico’s independence and stand against foreigners.

One of the most prolific petroleum producers in the world, Mexico will soon approach the status of being a net oil importer if Pemex is not modernized and made more efficient.

While oil is still abundant in Mexico, Pemex has lagged behind other oil companies in utilizing technology to seek new oil fields and shale deposits, and to efficiently process its resources. Even though Pemex ranks in the top 10 of all petroleum producers with more than $100 billion in annual revenues, the Mexican government taxes the company to support up to 40 percent of the national budget, leaving the company with very little to invest in technologies and innovation.

The issue of privatizing Pemex has been extremely controversial in Mexico, as many Mexicans are suspicious of private sector interests dominating the petroleum sector as American and British interests did up until 1938. Politics have always been part of this discussion, which becomes more difficult if one considers that Mexico’s constitution essentially grants the government title to all subterranean mineral and resources rights, and that would have to be changed to allow for the privatization of Pemex. The Mexican political left has been the most vocal opposition to this change.

The Pemex question has landed square in the lap of Mexican President Enrique Peña Nieto, who is not even a year into his six-year term. He has publicly announced that the company needs to modernize and that private sector interests, especially in research and exploration, need to be incorporated into Pemex. However, the details of exactly how this will be accomplished remain unknown.

During my career, I have worked with Pemex personnel on several projects. I always found dealing with this behemoth to be extremely hard because of the layers upon layers of bureaucracy and administrators. Imagine the worst government agency possible and you have an inkling of what it is like to work with this company.

I have come to view Pemex as a nation unto itself that exists alongside the actual Mexican government.

Having spent time in Pemex headquarters in Mexico City, often referred to as the Pemex Tower, I saw first-hand the bloated nature of the company, with thousands upon thousands of workers occupying every inch of space in this multi-story building. Today, Pemex holds the dubious distinction of ranking dead last among major oil companies in worker productivity.

I had a friend in Mexico City who used to tell me that landing a job with Pemex was like winning the lottery. The union representing the more than 160,000 Pemex workers has traditionally negotiated sweet deals for its constituents, allowing many to retire at the young age of 50 and to collect more than 100 percent of their salaries for the rest of their lives. In turn, the union bosses live extravagant lifestyles, with many seen driving around in expensive Ferraris or cruising around the world in private jets, not worried about the corrupt image of the company they reinforce. Industry experts estimate that Pemex can be run with a third to one-half fewer employees.

Meanwhile, oil production in Mexico has actually declined by 25 percent during the past eight years, exactly at the time that world oil prices have risen to new highs. This comes at the same time that Mexico finds itself forced to import more and more gasoline for its growing economy and population.

To address Pemex’s deteriorating situation, Peña Nieto has proposed a reform package that would allow foreign companies to participate with Pemex and use their technologies in areas such as exploration. His proposal also would allow Pemex not to have to cede the majority of its revenues to the Mexican government. In turn, the company’s revenues would be subject to income tax, royalties and dividends. In theory, this would free up more of the company’s revenues, which could be invested in research and development.

Peña Nieto’s reform proposal is being hotly debated by not only the country’s lawmakers, but also by the general Mexican population, more than 60 percent of whom are estimated to be against any Pemex reform. The unions also will have to be dealt with in order to streamline the company’s workforce, which is no small task; once workers become accustomed to generous benefits and perks, it is hard to take them away.

Peña Nieto will have to use every political skill and charm at his disposal to sell his package to Mexico’s congress and to the Mexican people if any progress is going to be made concerning Pemex. If successful, he will go into the annals of Mexican history as one of the country’s major reformers.

elpasoinc.com

5 Comments on "Pemex problems"

BillT on Tue, 3rd Sep 2013 3:07 am 



Don’t worry. When the Empire annexes Mexico, we will be glad to pillage your oil.

Beery on Tue, 3rd Sep 2013 3:32 am 



“One of the most prolific petroleum producers in the world, Mexico will soon approach the status of being a net oil importer if Pemex is not modernized and made more efficient.”

It makes no difference how efficient it is, all that can be done is determine how quickly the remaining resources (which are finite) can be extracted. Quick or slow, the amount is the same.

Luke on Tue, 3rd Sep 2013 7:30 am 



After missing the “shale revolution” Shell, Exxon, BP… and their corrupt lobbies are probably shaking on their ass to “collaborate” with PEMEX. It is now their opportunity to suck the “oil abundancy” left in the Mexican deep waters asap. Wonder when their CEOs will have friendly diners at the luxury country houses of the PEMEX and Nieto’s elite. The mexican impoverished and drugs cartel intimidated population can cheer them!

dsula on Tue, 3rd Sep 2013 12:51 pm 



Billt: Hahahaha. Who annexes who? You have not been in the US lately, have you? Breeding is the strongest weapon and will overwhelm even the strongest armies.

BillT on Tue, 3rd Sep 2013 5:06 pm 



dsula, I know more about what is happening in the US than you seem to. The North American Union is not dead, it is still proceeding as planned, just under the MSM radar. Yes, we will ‘annex’ Mexico either before or after Canada. That is why there has been no real closing of the borders and why there are new military sharing arrangements with Canada. Be patient!