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Mexico's oil output falls, Pemex needs cash infusion

Should the national oil company allowing private investments? Critics worry about foreign control.

from the February 26, 2008 edition

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Pemex has been Mexico's sacred cow since foreign companies were kicked out in 1938. Since then the Constitution has barred private ownership. Pemex is a source of national pride, but it's been crippled by inadequate funding, corruption, and inefficiency.

High oil prices have helped mask the decline, says Amy Myers Jaffe, an energy analyst at the James A. Baker III Institute at Rice University in Houston. Pemex generated revenue of about $100 billion last year. But the situation, under the surface, is dire.

"If they don't push through a major reform package, Mexico is going to become a net-oil importer. That is bottom line," she says. "They need to be making investments, period."

Declining output is not all Pemex has had to contend with recently. A devastating accident at an off-shore platform in October killed nearly two dozen workers. What's more, the company has had to field rampant claims of corruption.

Most scientists agree that there are plentiful reserves in the Gulf of Mexico, but Mexico lacks the technology to head such exploration. Politicians say they are looking at ways to invite private companies into the industry without having to change the Constitution.

But many opposition leaders are suspicious, as are many Mexicans. "It's an illusion to say private investment will make the company better. Foreigners will come and take away our jobs," says Mr. Lopez Martinez.

Critics say they believe that supporters of allowing private alliances are manipulating the severity of the problem. Rogelio Ramirez de la O, founder of the consultancy Ecanal and economic adviser during Lopez Obrador's presidential bid, says that there are ways to channel more money into Pemex so that it can make the needed investments. He says first Pemex should be given the money to increase its technology. In the case of other state companies, he says, their ability to explore in deep waters did not happen overnight.

Right now more than half of Pemex's income is funneled back to the government, accounting for 40 percent of its national budget. Generating more investment could also be done by changing the nature of subsidies offered on product prices, says Ms. Jaffe, or restructuring the company to make it more efficient. All of the parties call for more transparency.

Polls consistently show that the far majority of Mexicans are against private investment in the energy sector. But many also misunderstand the issue. Mr. Camarillo says it's their job to explain it. "It's a very touchy subject."

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