Courses, Spring 2003
Politics of Petroleum
Daffodil Altan and
“Patria, el niño Dios te escrituró un
y los veneros del petróleo, el Diablo.”
country, the child Jesus left you a stable/
and the Devil left you springs of petroleum.”
López Velarde (1888-1921)
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.
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.”
outside the tomb of Lázaro Cárdenas — the
president who led the bold move to nationalize Mexico’s
oil — during the 65th anniversary commemoration, Soto’s
small frame hunched inward, and her eyes grew big with tears.
come to his tomb, and I say to him, “Look, Lazaro, look
at what they’re doing to our country,” she said.
her the giant Monument of the Revolution, which houses Cárdenas
and other Mexican heroes, stood in the midst of Mexico City’s
incessant traffic. Handfuls of retired oil workers scuttled
about, unnoticed by herds of taxis and blaring horns.
we say here, Mexico is an oil power without any money,” said
upon a time, 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.
Mexico, which has borne the weight of U.S. influence throughout
its turbulent history, the discovery of oil and natural gas
and the decision to nationalize their exploitation 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.
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, like gasoline and natural gas, from the
United States. Additionally, a long history of collusion between
the state oil company, Petroleos Mexicanos (PEMEX) and the
government has led to corruption and mismanagement in the industry.
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.
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.
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.
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.
have 18 years left of proven oil reserves, at most 25 or 30,” said
political analyst Georgina Sanchez. “But 25 or 30 years
is not much to launch alternative technologies or financial
mechanisms to replace oil.”
long muddled history of corruption and mismanagement, many
Mexicans believe, is also slowing down reform.
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 Ambassador to Mexico in
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
PEMEX officials see the story differently.
the thick iron gates of the 50-story PEMEX skyscraper in Mexico
City, where more than 20,000 people come to work everyday under
the vigilant watch of a massive bronze statue of Lázaro
Cárdenas, it’s hard to imagine that Latin America’s
biggest corporation might lack the resources to protect its
since Vicente Fox appointed Raúl Muñoz Leos,
a businessman with an impressive corporate track record, as
CEO in 2000, PEMEX has embarked on an ambitious exploration
plan. Many within the Fox administration hope it will shift
PEMEX out of its old corrupt system and into corporate gear.
historically lagged behind in exploration, but we’re
working to fill that gap,” said Miguel Angel Maciel,
Chief Engineer within PEMEX’s Exploration and Production
exploration budget has increased five-fold 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
exploring is expensive, and under the current tax regime, PEMEX
has to hand over 80 percent of its revenue to the government,
leaving little money aside for the financing of new discoveries.
need to increase exploration, but there is no money,” said
oil analyst David Shields, who has been following PEMEX for
a different country, privatizing parts of the state oil industry
or the sale of concessions to private oil companies would be
an alternative for raising capital, but the heavy bust of Lázaro
Cárdenas in the corridor is a reminder that in Mexico,
this is not an option. The constitution maintains that hydrocarbon
production and exploration are the exclusive responsibility
of the state.
don’t envision the dismantling of the state monopoly
or the allowance of any oil concessions,” said Maciel.
the presence of foreign oil companies waiting for the doors
to privatization to open up is unmistakable. For their help,
the Mexican government has come up with a short-term solution,
called deferred impact projects, where private companies finance
major oil projects which the government purchases after they’re
finished. This formula keeps PEMEX debt off the books for a
few years and keeps with the constitution by refusing concessions
to any company.
some factions within Mexico (especially the National Action
Party) would like to modernize the industry by breaking up
the PEMEX monopoly and opening doors to foreign investment,
officials within PEMEX insist that oil will remain as Mexican
as tamales for years to come.
while PEMEX insists that oil will remain steadfastly Mexican,
Ciudad del Carmen, an oil boomtown on the edge of the Mexican
Gulf has become strikingly international.
paved sidewalks are brimming with Burger Kings, Holiday Inns,
and scores of foreign oil contractors. Canadian, Argentine
and Venezuelan workers fill the seafood restaurants. They fly
in from the rigs offshore, checking into three star hotels
to ditch their orange Schlumberger jumpers.
at the bustling airport just outside town, Jose Luis Zepeda,
the manager of Pegaso Air Transport, is doing booming business
transporting foreign engineers and technicians from Ciudad
del Carmen to the platforms of Cantarell. “Most of our
oil business is with PEMEX, but we move people from Schlumberger,
Halliburton, all the companies,” he said.
never really shook off the presence of foreign companies. More
than 40 private companies operate on 60 percent of oil fields.
PEMEX depends on them for everything from off-shore drilling
technology to environmental clean-up techniques.
plans to attract direct foreign investment in natural gas exploration,
with plans for controversial contracts known as Multiple Service
Contracts (MSC) which would allow private companies to take
over the management of whole 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, they are ready
to put their foot in the MSC door — waiting, perhaps,
for the day when they can extract oil as well as gas.
course, opening the fields up further will bring more business,” said
Zepeda, as one of his yellow helicopters stuffed with oil workers
took off from the sun-baked tarmac heading out to the heavy
platforms which stand like iron islands, pulling thick crude
oil from deep below.
Mexican government expects to attract more than $8 billion
in direct investment from Multiple Service Contracts in the
next five years. PEMEX hopes that the first contracts for natural
gas exploration will be signed in August. Although PEMEX is
very careful about saying that the contracts are limited to
natural gas development, there is no legal reason why they
cannot be extended to oil eventually. After all, both are hydrocarbons.
this is also why the future of the MSC’s is still uncertain — anything
that might open the door to foreign contact with oil generates
contracts are perfectly constitutional,” says Rafael
Aguilera, PEMEX’s legal representative in charge of MSC’s. “Private
contractors are paid a fixed fee in cash, they don’t
sell the oil. Those who oppose the MSC’s either do not
really understand it or do so because they have an electoral
from the oil-stained workers of Cantarell, the political fight
over PEMEX’s dilemma rages within the offices of the
Mexican parliament, a modern high rise in the aristocratic
Paseo de la Reforma, the heart of Mexico City.
the single greatest obstacle to the MSC alternative is the
battle that has erupted between the Institutional Revolutionary
Party (PRI), which considers itself a defender of the legacy
of Cárdenas and the interests of the Mexican people
and the National Action Party (PAN), which sees the MSC’s
as one of the few viable ways for PEMEX to work its way out
of its predicament.
political fight over the wealth ensconced in Mexican soil is
a long and sordid one. Although the two primary parties embroiled
in the debate agree that Mexico should have exclusive rights
to the reserves stored in Mexican soil, the question of which
direction to push PEMEX becomes heated when talk of service
contracts and tax reform hits the floor.
opposed to the MSC’s believe the answer to PEMEX’s
money troubles and thus, a solution to Mexico’s dilemma
in exploring for more oil offshore, lies in tax reform within
the state and the company. “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.
most agree that PEMEX’s tax burden is excessive, without
a comprehensive and controversial tax reform, the only alternative
is to seek other alternatives. And since the Fox government
stepped into power, the taboo buzzword that is ventured and
then crushed in the parliamentary acrimony of political debate
despite the vibrant nationalistic undercurrent that informs
all political talk of Mexican oil since it was nationalized
in 1938, PEMEX has had a long relationship with foreign companies.
It is a relationship that will likely expand as the solution
to PEMEX’s financial dilemma if current CEO, Raul Munoz
Leos’ plans for reform are successful.
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 who would not compete for political
power with the state, he said.
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.”
story of Mexican oil is the story of Mexico, said Homero Aridjis. “Oil
has historically been considered a source of wealth, but it
has been the source of conflict for Mexico.”
Daffodil Altan and Angel Gonzalez are graduate students
in the School of Journalism at UC Berkeley.