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Mexicans guard oil wealth jealously

Jeff Tyler Oct 14, 2013

Mexicans guard oil wealth jealously

Jeff Tyler Oct 14, 2013

The president of Mexico is trying to achieve what others have tried to do and failed. That is, reform the country’s oil industry to allow more foreign investment.

Energy reform might not sound like a big deal in this country. But in Mexico, it’s downright revolutionary.

Oil money laid the foundation for Mexico’s economic independence. And many Mexicans see the commodity as a national heritage that should be passed on to future generations, and not an asset to be sold-off to foreign companies.

Nonetheless, president Enrique Peña Nieto has proposed a constitutional amendment to allow foreign companies more direct investment in the oil industry. That could shake things up at Mexico’s state-run oil company, called Pemex.

Visiting Villahermosa: A reporter’s perspective

As the country debates reform, I wanted the perspective from an oil town, so I headed to Villahermosa, capital of the state of Tabasco. Just like the sauce, it’s hot. Villahermosa is a modern oil city that grew up around a small town of two-story colonial buildings and narrow streets.

Ricardo Baron stood on the corner, waiting for work as a mariachi. He played me a song on his guitar, called ‘Tampico Hermosa’ that underscores the bond between Mexico and its oil industry. The song celebrates the oil in the countryside, and how that wealth provides jobs for thousands of workers.

“Don’t privatize it. It should continue to belong to Mexicans. We need to guard it jealously,” says Baron.

Jealously guarding the status quo is not a recommendation you’ll hear from industry analysts. In the last ten years, oil production has fallen by almost a million barrels a day.

“Look at Canada. Canada drills more wells in a given year than Mexico has drilled in its entire history,” says John Padilla, a managing director with an international energy consulting firm called IPD Latin America. “You have a company that now has $100 billion of unfunded pension liabilities. You have $60 billion of long-term debt. 151,000 employees for a company that perhaps needs 60,000 employees total.”

Many of the untapped oil reserves are under the ocean, in very deep water, requiring technological expertise that Mexico doesn’t have.

But a company overhaul isn’t a no-brainer. And that’s because of the history of the national oil company, Pemex.

Consider Pemex’s founder: Lázaro Cárdenas. If you don’t know who that is, ask any random Mexican high-school student, like 17-year old Gustavo Quintana.

“Lázaro Cárdenas was a president, who is known for expropriating the oil industry for the benefit of all Mexicans,” says Quintana.

In 1938, Cárdenas kicked out the foreign companies and nationalized the oil industry. Mexico was the first. The model that Iran and other countries followed.

His son, Cuauhtémoc Cárdenas, is a political heavy-weight in his own right. He’s a former governor and a political party leader. He currently works for the government of Mexico City.

Cárdenas believes it would be a mistake to allow foreign companies too much influence.

“The Mexican state should not lose control over the oil industry, and it should be the Mexican state making decisions on how to exploit our oil deposits,” says Cárdenas.

As it stands, Pemex is sort of like the nation’s piggy-bank.

“Right now, Pemex contributes almost 35 percent of fiscal revenues of the government,” says Cárdenas. “Pemex pays its taxes in advance. And every day of the year, Pemex pays about $60 million.”

That money goes to pay for things like roads and bridges and schools. Protecting Pemex could be seen as a means to protect future government funding.

But in hot and humid Villahermosa, that government funding seems to evaporate.

Along the pedestrian shopping mall downtown, I spoke to Javier Hernandez.

“I haven’t seen a positive change for the rural peasants or the indigenous people. They make promise after promise, but there is no development,” says Hernandez.

Lawyer Delfina Gomez, 50, says Pemex is bad news for the environment.

“When Pemex enters an area, they destroy the place. What we have naturally, in the end, it is finished,” says Gomez.

Nonetheless, she doesn’t support the proposed reform. Gomez worries that bringing foreign companies into the industry would drive up prices.

“It would make gas prices more expensive for us,” says Gomez.

The only Mexicans I met who supported reforming the oil industry were people trying to work in the oil industry. 

But a recent poll shows most Mexicans oppose allowing foreign companies to take ownership of the oil in the ground. As they see it, the move would mean less money for Mexicans.

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