Thread: The Latin American Oil Connection: 'An oil power without any

The Latin American Oil Connection: 'An oil power without any money'

As Mexico's petroleum reserves shrink, hope of prosperity evaporates

DAFFODIL ALTAN and ANGEL GONZALEZ
Special to the Tucson Citizen








MEXICO CITY - Guadalupe Alvarado Soto wants her chickens back.

In 1938, after Mexico banished foreign oil companies and nationalized its petroleum reserves, the young orphan did her part. "I went and I sold my chickens at the market to help pay for the machines that we would need to drill for oil," she said.

"I was 13 at the time, but even then I understood the significance of our oil and our need to defend it."

On the 65th anniversary of Mexico's nationalization of oil, Soto stands outside the tomb of Lázaro Cárdenas, the president who engineered the expropriation.

"I come to his tomb, and I say to him, 'Look, Lázaro, look at what they're doing to our country,' " she said with her small frame hunched inward and her eyes filled with tears.

Behind her, the giant Monument of the Revolution, which houses Cárdenas and other Mexican heroes, stands in the midst of Mexico City's incessant traffic.

Handfuls of retired oil workers scuttle about, unnoticed by herds of taxis and blaring horns.

"Like we say here, Mexico is an oil power without any money," Soto said. Once, oil was the biggest pot of gold a country could strike. With oil, countries could rest assured of their enviable position within an emerging global energy market.

For Mexico, the discovery of oil and natural gas, and the decision to nationalize those resources in 1938, fostered hope that the country could finally assert itself as an economically independent nation. Its oil and gas would provide not only a ticket to easy wealth, but also energy security for its growing industry.

Today, however, the world's fifth-largest oil producer is at risk of becoming a net energy importer. Its proven reserves are running out, and the country brings in more than $12 billion in refined products, such as gasoline, and natural gas from the United States.

Government corruption

In addition, a long history of collusion between the state oil company, Petróleos Mexicanos (PEMEX), and the government has led to corruption and mismanagement in the industry, according to reform-oriented Mexicans.

For Soto and many of her compatriots, who have witnessed the promise of Mexican oil wealth become nothing more than a tangled state monopoly, the Mexican government and PEMEX have failed to deliver.

Everyone from taxi drivers to state senators to the CEO of PEMEX agrees that Mexico's energy regime needs change. The dilemma facing politicians, PEMEX officials and citizens alike is how to reform and modernize the company without violating Article 27 of the Mexican Constitution, which strictly forbids foreign companies from investing needed capital and reaping any wealth from Mexican oil.

When the Cantarell oil field was discovered in 1974 off the coast of Campeche in the Gulf of Mexico, things never looked better for Mexico. In a time of booming oil prices and dwindling reserves, PEMEX found one of the largest deposits in the world - one that produces more than half of Mexico's oil at more than 2 million barrels a day.

Decline expected

Today, Cantarell is reaching its peak and is expected to start a slow decline next year - and with that the decline of the country's known oil reserves. "We have 18 years left of proven oil reserves, at most 25 or 30," said political analyst Georgina Sánchez. "But 25 or 30 years is not much to launch alternative technologies or financial mechanisms to replace oil."

A long, muddled history of corruption and mismanagement, many Mexicans believe, is also slowing reform. "Ask anyone in Mexico, and they will tell you that PEMEX to them means corruption," said renowned Mexican author and poet Homero Aridjis, who also served as Mexico's ambassador to Holland.

"PEMEX has no face. I was extremely morally conflicted in Holland as a diplomat, having to watch the way PEMEX behaved. It was like having a very powerful mafia right next to the government. And one that was always working with the government."

PEMEX officials see the story differently.

Within the thick iron gates of the 50-story PEMEX skyscraper in Mexico City, where more than 20,000 people work every day under the vigilant watch of a massive bronze statue of Cárdenas, it is hard to imagine that Latin America's biggest corporation might lack the resources to protect its lifeline.

Indeed, since President Vicente Fox appointed Raul Muñoz Leos, a businessman with an impressive corporate record, as CEO in 2000, PEMEX has embarked on an ambitious exploration plan - one that, many within the Fox administration hope will shift PEMEX out of its old corrupt system and into corporate gear.

'Working to fill that gap'

"We've historically lagged behind in exploration, but we're working to fill that gap," said Miguel Ã?ngel Maciel, chief engineer in PEMEX's Exploration and Production Division.

"Our exploration budget has increased fivefold since last year, the replacement rate of our reserves reached 46 percent last year, and we expect to reach a 102 percent replacement rate by 2006," he said, referring to the level at which the quantity of newly discovered oil is added to continually dwindling reserves.

But exploring is expensive, and under the current tax structure, PEMEX turns over 80 percent of its revenue to the government. That leaves little money to finance exploration.

In a different country, privatizing parts of the state oil industry or selling concessions to private oil companies would be an alternative for raising capital, but Mexico's constitution forbids it.

Nationalized oil is also a sign of Mexico's independence vis-ÃÂ*-vis the United States. A recent proposal from U.S. congressmen to link a long-sought migration treaty to the opening up of PEMEX to foreign investment was immediately rejected by the Fox administration.

"We don't envision the dismantling of the state monopoly or the allowance of any oil concessions," said Maciel of PEMEX.

However, the presence of foreign oil companies waiting for the doors to privatization to open is unmistakable. For their help, the Mexican government has come up with a short-term solution, allowing private companies to finance major oil projects that the government purchases after they're finished.

This formula keeps PEMEX debt off the books for a few years and adheres to the constitution by refusing concessions to any company.

PEMEX also plans to attract direct foreign investment in natural gas exploration, with plans for controversial contracts that would allow private companies to take over the management of exploration and drilling in natural gas operations for a single fixed fee.

TotalFina ELF, Gaz de France, British Petroleum, Exxon Mobile - all have shiny offices in the capital and, according to Maciel, are ready to enter into one of these new contracts - waiting, perhaps, for the day when they can extract oil as well as gas.

The Mexican government expects to attract more than $8 billion in direct investment from the new contracts in the next five years.

Although PEMEX is careful about saying that the contracts are limited to natural gas development, there's no legal reason why they cannot be extended to oil eventually.

But that is also why the future of the new contracts is still uncertain - anything that might open the door to foreign contact with oil generates political controversy.

"The contracts are perfectly constitutional," says Rafael Aguilera, PEMEX's legal representative in charge of the contracts. "Private contractors are paid a fixed fee in cash; they don't sell the oil. Those who oppose the new contracts either do not really understand it or do so because they have an electoral agenda."

Perhaps the single greatest obstacle to the proposed contracts is the battle that has erupted between the Institutional Revolutionary Party (PRI), which considers itself a defender of the Cárdenas' legacy, and President Fox's National Action Party (PAN), which wants to modernize the industry by breaking up the PEMEX monopoly and allowing foreign investment.

PAN representatives see the contracts as one of the few viable ways for PEMEX to work its way out of its predicament.

Tax reform the answer?

Those opposed to the contracts think the answer to PEMEX's money troubles lies in tax reform.

"There is no other company in the world that is taxed as much as PEMEX. If that were to change, then the company would have the necessary resources to invest in itself," said PRI leader Rafael Segovia.

"What is happening today is not new," said Mexican historian Lorenzo Meyer, referring to the need for foreign investment after oil was nationalized in 1938. Then, however, PEMEX sought investment from small companies that would not take political power from the state, he said.

"Today the fight is big and ideological," he said. "PEMEX could be efficient, from the perspective of the market. We don't need to have physical control of the oil, we can control it through taxes, regulations, not with this massive bureaucracy that has become a monopoly. All we have now is a perpetual stalemate."

The story of oil is the story of modern-day Mexico, said Aridjis, the former ambassador. "Oil has historically been considered a source of wealth, but it has been the source of conflict for Mexico."

They are still pumping 2 million barrels a day, every day, 7 days a week. 2,000,000 X $51.00 = $102,000,000 a day X 365 = $ 37,230,000,000.00 a year, still not to shabby! Now just imagine if the bulk of that money was used to improve roads, schools, city, state, and federal government infrastructure, medical facilities, real plumbing through out the country. It would produce jobs, jobs and more jobs. Unfortunately, this is not the case. A small group of elitist slobs are padding their Caymen Island bank accounts with the wealth of Mexico. Now this is for the Aztlanders out there, let's say hypothetically Aztlanders got their way and the US government decided to give the land to Mexico. It would become part of Mexico. This would mean the same buzzards that have been bleeding the country of Mexico dry for decades, would now do the same thing right here and turn Aztland right back into the same dismal situation that the immigrents ran from in the first place. What all of a sudden they will become generous and let you keep it? So my ultimate question is WHY? Why not assimilate into the culture you ran to to get away from that garbage? And more over why are we the bad guys?

"A recent proposal from U.S. congressmen to link a long-sought migration treaty to the opening up of PEMEX to foreign investment was immediately rejected by the Fox administration. "


Of course he rejected it. Mexico is always on the receiving end of the deal and they would have actually had to give on this one.

Forget about Mexico. Just forget about them. Forget about their oil. Forget about their corruption. Forget about their poverty. Forget about their immigration demands.

ANY COUNTRY that would export its people is NOT a country that we want much to do with.

THE people of Mexico have to solve their problems.

They have many blessings in Mexico; they have a beautiful country; they have tourism; they have agriculture; they have oil; they have a growing population which means a growing market; and they have a very active Catholic Church, the largest diocese in the World. The Catholic Church is the wealthiest church in the world.

Mexico has everything it needs to be a nice, lovely successful country.

The US needs to stay out of Mexican Affairs. Mexico needs to stay out of American Affairs. We're neighbor nations and nothing more. THAT'S IT! PERIOD. END OF STORY.

Leave Mexico alone. Make them leave US alone.