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ENERGY-MEXICO: PEMEX in Death Throes Amid Political Squabbling

Diego Cevallos

MEXICO CITY, Feb 26 2008 (IPS) - Mexico’s state oil company, PEMEX, is broke, and the country’s crude oil reserves will run out in less than 10 years. But although local politicians agree on the diagnosis, few are proposing solutions, while recriminations, by contrast, are flying thick and fast.

The administration of President Felipe Calderón and the country’s main parties have promised to begin in March to design and discuss plans to get the oil industry back on its feet.

It is a touchy issue. To the left, it is tantamount to heresy to suggest that PEMEX should be partially privatised, or even given the freedom to pursue partnerships with the private sector.

The company covered about 42 percent of the Mexican state’s total budget in 2006 and 2007, with the result that it now has no capital to spend on innovation and development.

PEMEX was nationalised on Mar. 18, 1938 when the government expelled British and U.S. oil companies.

Andrés Manuel López Obrador, former presidential candidate for the leftwing Party of the Democratic Revolution (PRD), has repeatedly said in recent weeks that “the right” wants to privatise PEMEX, and warned that if that should happen, there will be outbreaks of violence.

He and his followers held a rally in the capital on Sunday, and threatened to block roads and occupy airports and financial institutions in a bid to block those who, in their view, want to “hand over our oil industry to voracious oligarchies, whether Mexican or foreign.”

But neither the conservative governing National Action Party (PAN) nor any other party has suggested privatising the company. They have merely provided assessments of the problem and set forth general outlines of proposals so far. No one, to date, has presented a formal draft law to overhaul Pemex.

Cuauhtémoc Cárdenas, another former PRD presidential candidate and the son of former President Lázaro Cárdenas, who nationalised the industry, said that the party should not “fight an extra round” against privatisation when no one has proposed it yet.

Cárdenas urged fellow members of the PRD to draft a law on the future of PEMEX, instead of waiting for others to do so.

“Conjecture about privatisation has conjured up a bogeyman, and I suppose people want to make political capital out of it, but that will not help to clarify the problem or find realistic solutions for PEMEX,” Ignacio Mancera, an oil engineer at the National Autonomous University of Mexico, told IPS.

At López Obrador’s rally on Sunday, he said again that the oil “belonging to all Mexicans” was going to be “given away.”

At the demonstration, held in front of the PEMEX building in Mexico City, PRD lawmakers were the target of verbal abuse, and were showered with sticks and plastic bottles by groups who accuse them of negotiating a presumptive privatisation with the government, which they indignantly deny.

López Obrador, who claims he lost the July 2006 presidential election to Calderón as a result of fraud, has made some general proposals for overcoming the crisis at PEMEX, but they have been judged impractical by oil industry experts.

Mexico is the world’s sixth largest producer of crude, pumping 3.1 million barrels per day (bpd) and exporting 1.5 million bpd, while PEMEX is among the world’s top ten oil companies. Yet despite its size and importance, it will soon be unable to maintain its present rate of production because it has run out of money.

Most of the company’s profits go into the government coffers to cover running expenses. The state has no reliable alternative sources for this revenue.

With most of its profits skimmed off in this way, PEMEX lacks the cash to invest in exploration, refining and technology, and has been unable to drill for oil in deep water in the Gulf of Mexico, where there is thought to be more oil. Instead, PEMEX has been exhausting its proven reserves.

The latest official reports say that Mexico’s crude reserves will last for another nine years and three months. In 2000 the oil was expected to last until 2020.

To keep going, PEMEX has gone heavily into debt, and now it owes more than the value of its assets.

Furthermore, because investment has not been made in refineries, Mexico now imports 40 percent of the fuel consumed by its vehicles and industries.

Most of Mexico’s energy is derived from burning fossil fuels.

According to Institutional Revolutionary Party (PRI) Senator Francisco Labastida, one of those calling for an urgent debate on legislation to reform PEMEX, Mexico “is making the worst possible bargain: exporting commodities and importing added-value manufactured goods.”

Not even the windfall earnings resulting from the current soaring oil prices have helped PEMEX out of the crisis. Most of the additional profits were shared out among the country’s state governments to cover their expenses.

“There is no factual basis for thinking that the state monopoly can carry on as is. If PEMEX is not reformed, the country will be sucked into a huge crisis because of lost income, and it will have to start importing oil,” Mancera warned.

The Calderón administration has indicated that it will leave the discussion of any PEMEX reforms up to members of Congress, and will accept their decision.

Meanwhile, the ruling party says it is considering options such as allowing PEMEX to form partnerships with foreign state companies like Brazil’s Petrobras, or with private firms, which, they say, does not amount to privatisation of the country’s energy reserves.

The PRI, which governed Mexico from 1929 to 2000, suggests selling shares of part of PEMEX on the stock exchange, and seeking partners abroad to share the risks of exploration and technological development for deep water drilling.

Both parties agree that changes are needed to put the firm on a more businesslike footing, and to give it more autonomy from the Mexican state.

The PRD has said repeatedly that it will not present any proposals in March, but López Obrador says that PEMEX could be saved by investing an extra 40 billion dollars a year.

The cash injection could be found, he argues, by slashing salaries in the state bureaucracy, and using the profits arising from high-priced crude exports. The budget for fiscal year 2008 was predicated on the basis of an oil price of 46.6 dollars a barrel, nearly 30 dollars below the current price of Mexican crude.

The former presidential candidate proposes that all the windfall profits be used to build new refineries, and for exploration, with entirely Mexican resources and technology.

Economist Enrique Quintana, a columnist for the newspaper Reforma, and some oil industry analysts say that López Obrador’s proposal is based on shaky premises.

In order to save 20 billion dollars a year in salary cuts, the government would have to slice 42 percent off state bureaucrats’ pay across the board, a move regarded as politically impossible at this time.

To obtain the other 20 billion dollars, the price of crude would have to stay at 80 dollars per barrel, with exports at 1.4 million bpd, for 14 months. This is probably viable, analysts say, except that the additional profits have until now been going to the state governments, which would no doubt protest if their funding were cut off.

In addition, oil analysts have made it clear that Mexico has neither the technology nor the technical expertise to explore for oil in the deep seabed of the Mexican Gulf.

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