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Stand by, we are experiencing political difficulties

11 August 2013

Steve Cotton — a U.S. “Mexpatriate” living in one of the resort towns along the Pacific (well, so do I) posted a succint, US-centric overview of the history of oil expropriation here (Fill’er up) back on the first of August.

During his presidential campaign, Peña Nieto promised to open Mexico’s oil industry to the private sector — including foreign investors. He won on that platform.

To American and Canadian ears the proposal simply made sense. Liberal economics recognizes that government-controlled monopolies are inherently inefficient. A more competitive market and an infusion of new investment and technology would be a no-brainer up north.

But this is not Canada or The States. This is Mexico. What candidate Peña Nieto proposed was as radical as President Obama proposing to repeal the Second Amendment.

This is the position taken by all the U.S./Canadian/British business publications that have weighed in on the issue, so rather than bury you in links to Reuters, The Economist, Globe and Mail, Wall Street Journal, etc., I’ll riff off Steve (besides, it’s one of the better “my life in Mexico” sites, managing to get beyond the merely personal and various gringo crotchets).

To say Peña Nieto was elected on a platform of opening the oil industry to the “private sector” is a vast overstatement.  I honestly can’t find any analyst in Mexico (or outside Mexico) who has said that.  Certainly, it was somewhere in his umteen promises, but was used mostly by opponents (like AMLO) as a reason NOT to vote for him.  Even among those who are in denial about the fraud and dirty tricks that marred the last Presidential election (and the one before that), the sense is that PRI had the better political machinery, and that PAN had a lousy candidate, running to replace an extremely disliked, and disgraced, PAN administration.  That the PRD candidate was targeted for defeat by both of the two neo-liberal parties — with a probable assist from the United States — it was inevitable that Peña Nieto gained the Presidency.

Certainly, I think that the noises being made about “privatizing PEMEX” helped his candidacy (at least with foreign parties and possibly with foreign money), but it was hardly the key to his “victory”, nor is it at all a popular position in this country.  Even before Steve posted his piece, Forbes had reported on a poll by CIDE (Centro de Investigación y Docencia Económicas), a respected pro-business “think tank” showing about two-thirds of Mexicans rejected any privatization of the oil industry.  A month before Steve posted (26 June 2013), Forbes was reporting:

Peña Nieto is counting on the Pact for Mexico, an alliance of the country’s top three political parties, to try to get the reform passed. The proposal, which is expected to  involve reforming the Constitution, will need two-thirds support from Mexico’s Congress; the PRI, his party, does not hold a simple majority in either house. Peña Nieto reported that he’s negotiating to get the political support he needs to break the state monopoly. However, some analysts believe that the Pacto, which succeeded in getting through a monopoly-busting telecom reform in May, will not hold up this time.

In other words, this wasn’t a populist move (one that might get a guy elected), but one that depended on a political pact … among the leaders of the three main parties.  PRD and the smaller left-wing parties have already signaled their opposition, and so have a number of PRI office holders… who can read polls as

And, despite what U.S. based Jorge Castañeda says, history matters here.

And, despite what U.S. based Jorge Castañeda says, history matters here.

well as anyone else.  Even PAN is “iffy” on the “Pact for Mexico”, although PAN — which has never seen a privatization opportunity at least someone in the party doesn’t back, has been, as Steve noted, giving cover to a “don’t call it privatization” privatization (sort of in line with the “don’t call it the War on Drugs” War on Drugs we’d been subject to in the last — and this — administration) with its introduction of a proposal to

open the oil industry to private interests by amending article 27 to end the prohibition on oil and gas concessions and risk-sharing contracts, and to “guarantee the maximum benefit of oil profits for the nation from the work of the operators who conduct exploration and production activities.”

After putting off introduction of the proposed changes… first by a day, then by a week… and supposed to be presented tomorrow (12 August), which are said to include some (undefined) changes to Article 27 (dealing with the ownership of natural resources) of the Constitution. But… care is being taken to call any foreign participation “strategic alliances” and not foreign investment.

While PEMEX probably does need a cash infusion, the left (and some on the right) have been quick to note the poor management of the national company (possibly by design?) and the state’s over-reliance on PEMEX revenue for operating funds.  That doesn’t require foreign resources, which — if they do come into the company — are more likely to be from other state oil companies, like Brazil’s Petrobras, Venezuela’s PDVSA or Norway’s Statoil than from any of the “seven sisters” (which when you come down to it, are smaller companies than PEMEX).

And, last time this came up it went down to defeat, in the streets and in the halls of Congress, which is more than likely to happen again.

More when I see what the actual proposals are.   The only prediction I feel comfortable in making is that the U.S./Canadian/British business press aren’t going to be reporting what their readers want to hear.

3 Comments leave one →
  1. 11 August 2013 3:17 pm

    Thank you for a clear post on this somewhat complicated subject. Where we live, loyalty to Pemex as a government industry is patriotic, and understandably so, since it represented claiming oil production for Mexico meant getting it back from the exploitative foreign companies.

  2. Bebe permalink
    12 August 2013 3:48 pm

    I would have disagreed with the knee-jerk Mexican hatred of foreign investment at one time. The past 20 years of NAFTA (as well as a deeper reflection on some aspects of my own family’s history) have reversed my own knee-jerk opinion. The US especially tries to interfere in Mexico far too much without much consideration of history or humanity.

    Still I feel one can be concerned that, without a huge investment of capital and better efficiencies, PEMEX will not be able to maintain its support of the Mexican government- and not be called “vendepatria”. And it’s not good fiscal policy to rely on one industry for 35% mas o menos of the national budget. I am more hopeful these decisions will be Mexican ones than I would have been 20 years ago.

  3. norm permalink
    14 August 2013 5:08 pm

    I commented on Steve’s essay about the lack of landowner royalties being a problem in Mexican oil&Gas development. The problem I have on a personal level is the crappy coverage Pemex gives with its stations and their locations. A rule of thumb is to never let the tank get more than half empty because that station you are counting on for your next fill-up might be dry-happens all the time. I travel in Guatemala and Honduras as much as Mexico; private gas stations, they have them everywhere, and they are seldom out. It might cost a half dollar more in the boondocks but it’s there when you see the gas gauge yelling feed me. A common sight on the edges of civilization in Mexico, is a truck with oil drums at a Pemex station filling up for use out in areas with no Pemex service . How can this kind of activity be considered modern? Mexico in the 30 years I’ve been visiting has become a very modern place in many ways; its oil industry has not.

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