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Refining the rules

28 July 2009

Latin American Herald Tribune (Caracas):

Mexican state oil company Petroleos Mexicanos said plans for a new refinery are being held up because the two states competing to be the site of the facility have not yet secured title to the necessary land.

In a press conference on Friday, Pemex CEO Jesus Reyes Heroles said neither the authorities in Hidalgo state nor Guanajuato state – both in central Mexico – have acquired the 700 hectares (1,730 acres) needed for the refinery.

The Hidalgo town of Tula had been selected in April as the site for the $10 billion refinery, but now that a 100-day period to acquire the land from local landowners has expired Pemex says the facility could now be built in the Guanajuato city of Salamanca.

The winner will be the first state to show documentary proof “over the next few months” that it acquired sufficient land for the plant, Reyes Heroles said.

Guanajuato is governed by the ruling National Action Party, or PAN, while Hidalgo’s governor is a member of the opposition Institutional Revolutionary Party, or PRI.

The lands acquired by the two states must subsequently be handed over to Pemex’s refining subsidiary, Pemex Refinacion.

“We’re going to put $10 billion into that land and we to be extremely careful that things are properly carried out,” [Agrarian Reform Secretary Abelardo] Escobar added.

He ruled out the possibility that “political considerations” would be a determining factor and pledged to ensure that the process is handled in strict accordance with the law.

Sure “political considerations” were ruled out.  Uh-huh.

Mexico is self-sufficient in oil, but not in refining capacity.  For several years, Mexican gasoline has been refined in Texas and re-imported.  This created some anomolies, especially when gasoline prices north of the border shot up, and the small premium that Mexican drivers paid for PEMEX gasoline didn’t cover the refining costs, and we ended up having subsidized gas for a time (and U.S. drivers coming across the border to fill their tanks).  There was no question when PEMEX reforms were being debated last year that whatever bill passed would include building another refinery in the country.

However, locating the refinery was a political hot potato, which the Administration side-stepped by claiming the new refinery location was an open competition between the states.  Several submitted proposals, and Hidalgo’s selection was, in part, due to the need for PRI votes to pass the final compromise reform bill

However,  once the bill was passed, there was a loophole.  At the time, it was openly speculated that the reason for selecting Hidalgo was to avoid being too obviously favoring Guanajuanto, where the original administration bill had said the new refinery would be built.  The catch was that Hidalgo had to acquire the land out of its state budget, within 100 days.  Which it pretty much has.  If you want to keep score, right now it’s Hidalgo 493.36 hectares to Guanajuanto’s 408.10. (Numbers which, naturally, changed to Guanajuanto’s favor after I originally posted).

Of course, there are holdouts in both states, as you’d expect in any major land acquisition — but to suddenly “discover” that the 1922 Agriarian Reform Law applies to Hidalgo and not to Guanajuanto — not to mention that while neither state has managed to acquire 700 hectares, it’s more likely Guanajuano will — is a little hard not to believe is a politically motivated decision.

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