The Future of Mexico’s Oil: Social Action to Stop the Energy Grab

In Mexico, as in the U.S. and Canada, citizens and democrats wish to “close the revolving door between the executive branch and K street (corporate) lobbying …” Mexicans are currently mobilizing to stop the deeply undemocratic practice of lobbyists [writing] national policies. – Barack Obama’s Blueprint for Change

Mexico is in the middle of one the most intense processes of public debate in its modern history. The theme is: the future of its energy sector and the state oil company PEMEX. The debate has been a demand of the Frente Amplio Progresista (formed by the left of center parties) in order to allow Congress to consider an upcoming bill that would privatize the operations of PEMEX. President Calderon (in office following a disputed electoral process) is trying to privatize energy that under the Mexican Constitution belongs exclusively to the State (Article 27). The debate is part of a social demand to halt this initiative that violates the Mexican Constitution. Mexican energy is one of the few sectors excluded from NAFTA, and one of the few still owned by the Mexican State.

These debates represent one of the strongest social eruptions in Mexico since Calderon usurped power in the 2006 presidential elections, and touch an open nerve due to the role oil plays in the national identity, as well as its strategic economic importance. Despite the fact that PEMEX has subsidized the Mexican state in the last decades, the government of Calderon is desperately trying to open up PEMEX and the energy industry in general insisting that it is not a process of “privatization.” Undoubtedly, this is Calderon’s main commitment to transnational capital (principally U.S. and Spanish), which helped place him in power.

In order to avoid a politically impossible reform of the Mexican Constitution, particularly of the Article 27 — seven out of every 10 citizens are against its reform, according to a recent poll — the governmental initiative’s intention is to go in by the back door and enact secondary legislation so that: “the social and private sector, with previous permission, will be allowed to carry out activities of transportation, storage and distribution of gas, of the products obtained from oil refining and basic petrochemicals. PEMEX will be able to contract with third parties services for refining oil.” The text goes on to say, “persons that pretend to develop activities or provide (these) services will be able to construct, operate and be proprietors of pipelines, installations and equipment.”

Isn’t this privatization? It is a paradox to include the “social sector” in the wording of the bill, since only a handful of business leaders (like Carlos Slim) have benefited from past privatization schemes. He is now the second richest man in the world and receives all of the profits from the telephone company Telmex, which charges the highest rates in the world. Also our Mexican banking system, sold by Mexican bankers to a few U.S. and European firms (Citicorp, BBVA, Santander and HSBC mainly), which were in turn bailed out by the State by means of the Banking and Savings Protection Fund (FOBAPROA). This was the biggest rescue package ever seen, with state funds that came from PEMEX. The result for these banks was an increase in earnings of 316 per cent (from 2000-2006). Most of these earnings have financed their losses in other countries, including their home countries.

Despite the fact that PEMEX has been the piggy bank for the Mexican state and for the financial “rescue” of privatization schemes, the deliberate attempts of successive neo-liberal governments to weaken it or ignore it are well documented. Attacks against the company have included constant discrediting campaigns along with threats to the Mexican population of future energy shortages and higher prices for oil. The main argument used as a justification to privatize the state company is that “it is bankrupt,” since its liabilities in 2005 exceeded its assets by three per cent. According to the government, it has reached its indebtedness peak and therefore it no longer has the capacity for further exploration or solving the problem of declining production. The logic of the neo-liberal government is that private capital will solve these problems.

However, a closer look shows that PEMEX generates huge profits and pays an excessive and out of proportion tax bill. During the period of 1998-2005, PEMEX generated a profit of 256 billion USD but paid taxes of $284 billion; hence it recorded a deficit of 28 billion dollars. It is noteworthy that the taxation method applied to PEMEX (taxes as percentage of profits) is four times larger for other private Mexican companies and three times higher than is applied to other oil companies .

The debate on PEMEX in Mexico is providing incredible insights into how this company has been the backbone of the state’s expenditure for decades; but also, how it has been a source of corrupt activities and fund deviations. The false solution of handing its operations and assets to private companies is an even more grotesque form of corruption being advocated by present governmental officials and transnational companies. Concrete links between members of the current and former ruling parties with transnational corporations have been made public by the opposition. For example, it has been disclosed that the family of the new Minister of the Interior, Juan Camilo Mouriño, and his lobbyist have made deals with the Spanish oil company Repsol.

In the center of this debate, the mayor of Mexico City and the Frente Amplio Progresista, drawing on a Local Public Consultation Act and two constitutional articles, have presented a proposal for a public consultation in Mexico City on the privatization of PEMEX, which could be expanded to other states. Ironically, the Calderon government has already announced that it will reject a public consultation in Mexico City because they say it is “illegal,” against the Constitution, and “obstructionist.”

However, it is particularly urgent that the Mexican population be consulted, as the riches of the nation, such as oil, belong to them. A public consultation is critical, given the existence of the secretive Security and Prosperity Partnership (SPP) arrangement among Canada, Mexico and the U.S. (initiated three years ago by presidents Bush, Fox and Martin). The SPP is little more than a cover for a furtive process articulating corporate interests and privatization policies. “North American Energy Integration” to satisfy U.S. oil addiction is a key component of the SPP. Under the SPP, only 30 large corporations participate in the North American Competitiveness Council (NACC), a non-democratic group of companies that are taking decisions that affect our future. Among the companies participating in this group are the oil giants Exxon Mobil, and Chevron Texaco — some of the same companies behind this big oil grab in Mexico.

These debates in Mexico are very timely. Public consultation is urgent because, as in prior privatization schemes, no mechanisms are being offered to guarantee that the future profits and benefits of the oil industry won’t end up in the hands of a few. The inevitable question is: how will the Mexican state finance itself, pay for public and social expenditures? Will the state continue “rescuing” privatized companies when they get into trouble? Will it pay for these expenditures by contracting more foreign debt? One of the few arguments put forward by Calderon is that the companies that invest in Mexico would pay taxes. The problem with this is that in Mexico corporations pay virtually no taxes on their profits. According to the Mexican Auditor General in 2005 (given the existence of hundreds of tax loopholes) they paid the ridiculous total of 74 pesos.

Not only is the reform of the oil industry but also that of the whole energy industry at stake in Mexico. A group of intellectuals in Mexico have put forward a document on the “principles that must guide energy reform in Mexico”:

1) “To preserve the exclusivity of the State over the propriety, dominion and management of the exploration, exploitation, refinement and the basic petro-chemistry. Only this exclusivity, established in the Constitution, would allow the oil profits to be used as a central driving force for the country’s economic and social development.”

This is very different than the “recommendations” that are being made by the NACC under the SPP process. They recommend that private entities be invited to participate directly in these activities.

2) “Direct the reform of the oil industry to guarantee the supplies for national demand.” This proposal also contains the “need to rationalize demand; eliminating waste and promoting efficiency and savings, with positive environmental results,” and a halt to the “abusive exporting slant that has been imposed on the industry in past decades.”

This challenges the SPP’s core rationale: the creation of an integrated “regional energy market” with the purpose of guaranteeing the supply of oil to the market that uses the most – the United States.

3) “High priority must be given to recover and continue widening the technological capacity of the oil industry; promoting research and development activities by means of joint projects by national research entities; coordinated by the Mexican Petroleum Institute.”

Accordingly, other important actors, such as the ‘Legitimate Government’ headed by Lopez Obrador have put forward the urgent need to free PEMEX from the tax burden that has been imposed to date, so that PEMEX would be able to reinvest in its own development. At the same time PEMEX should be strengthened and consolidated into a single unit so it can become a real motor for the national economy. They also propose that PEMEX and other production facilities should strengthen research and development activities, coordinate amongst themselves and build an anti-corruption committee into the administration of PEMEX, to address one of the main problems that this state-owned company has been burdened with under PRI and PAN governments.

To summarize: despite the efforts of a national oligarchy intent on handing the remains of Mexico’s riches over to transnational capital, Mexico is experiencing a lively process of social debate in which politicians, intellectuals, trade unions and social movements are taking part. This stands in stark contrast to the secretive SPP process, where the government receives recommendations from a handful of corporations who in effect end up dictating the rules. Allowing people to have a voice in such key decisions is what the Calderon government wants to avoid at all costs.

Manuel Pérez-Rocha directs the NAFTA Plus and the SPP Advocacy project, which is part of the Global Economy project at the Institute for Policy Studies.