In the midst of controversy regarding Mexico’s energy policy, President Andrés Manuel López Obrador says he supports “public-sector business” over the private sector, and that he will “rescue” state-run oil and power companies Petróleos Mexicanos (Pemex) and Federal Electricity Commission (CFE).
But how does he visualize Pemex’s future? Does he, for instance, want Pemex to compete in open markets and do joint ventures with other companies? From what he says, evidently he does not. So, does he want it to be a tax collector’s office, subordinated to the Finance Ministry? Or what is the way in which he thinks Pemex can overcome its problems?
On meeting with federal deputies recently, Pemex’s General director, Octavio Romero Oropeza, presented Pemex as a profitable company, but he complained about it having to hand over all of its profits, and still a bit more, to the Finance Ministry. He explained that for every peso of budget that it receives, Pemex gives back 9.4 pesos to the ministry, and that the tax burden on Pemex is 128 percent of its pre-tax profits. “Unfortunately, Pemex has the heaviest tax burden of any industry in the world,” he pointed out.
What is the solution, according to López Obrador? It would be a “rescue” effort, understood as self-sufficiency in a country locked within its borders. It is an autarchic and obsolete vision of 40 years ago or more, in which Pemex would not have to worry about what trade agreements say, because literally it would not compete with anyone, nor would it export oil nor import fuels. It is a pipe-dream, something totally unviable in practice for many reasons. For the time being, Pemex exports two thirds of its oil production and the revenues come in very handy to the government.
The National Hydrocarbons Commission (CNH), Mexico’s upstream regulator, has just given Pemex a wink by reminding it that it has the option of doing farmouts. It has proposed changing the rules for bidding processes which would facilitate the process of selecting partners for Pemex, giving full voice to the state-run firm. Pemex would provide the acreage to be explored and its partners would provide technology and financing.
Even for its aspirational self-sufficiency model, Pemex would need to explore more and produce more oil, to compensate for the decline in very mature oilfields and to supply its refineries. Another powerful reason Pemex has for doing joint ventures with private companies is that it would help it to improve its credit profile and to have room to maneuver in dealing with its eternal worst partner: the Finance Ministry.
But López Obrador says no. No to anything modern, no to farmouts, no to deepwater drilling, no to fracking. He does not even accept new partners for Pemex in shallow water and mature fields. If someone has told López Obrador and Romero Oropeza that developing only shallow water and mature fields, they would increase oil production, then they deceived him. No to joint venture partners, no even to paying Pemex’s suppliers.
In today’s Pemex, not much creativity is to be seen. They do not want to downsize, to restructure, to gain efficiencies. They are not interested in learning from success stories at the national oil companies of China, Brazil, Norway and Colombia. They do not seem to understand that creating wealth nowadays depends on private investment. They apply an apparently nationalist dogmatism, which is a synonym of failure, rather than modern pragmatism that would point them in the direction of success.
The government does not want to look at reality in its energy policy. For that reason, it can soon be expected to receive a landslide of litigation and arbitrages in the context of the U.S.-Mexico-Canada Trade Agreement (USMCA). Pemex’s third quarter report is also unlikely to reveal any new approaches regarding the company’s debt and operations. Could there be some kind of political motivation for wanting Pemex not to be successful? And if it is not successful, will the former neoliberal governments be the only ones held to blame? Everything seems to indicate that a “Fobapemex” bailout of the company is coming somewhere down the road, which would be painful for the country, but perhaps it is necessary.