Teaching Comparative Government and Politics

Tuesday, May 14, 2013

The politics of PEMEX

It's not just about government revenue and international trade, the future of PEMEX (and the Mexican economy) might be dependent upon constitutional reform.

To power Mexico forward, Peña Nieto looks to energy reform

It has been 75 years since President Lázaro Cárdenas seized the country’s foreign-dominated petroleum industry and placed every drop of oil under the everlasting domain of the Mexican people.

But while it once was a source of national pride, the state-run monopoly he created — known as Pemex — has become a dinosaur, sapped by debt, sagging output and dated technology. The Mexican government siphons off the company’s revenue to cover about one-third of the federal budget, leaving insufficient funds for what has become a critical task: finding more oil.

… the company lacks the technology and know-how to drill for the vast stores of tougher-to-reach deposits that are thought to exist beneath Mexico’s deserts and seas…

Fixing the company, formally known as Petroleos de Mexico, has become a top priority for Mexico’s new president…

At issue is whether Mexico will embrace the prosperous state-managed model adopted by countries such as Norway and Brazil — where national oil companies can partner with foreign firms and sell shares to investors…

For those pushing for change, the challenge is as much political as it is technical. The Mexican constitution essentially blocks the country from forming joint-venture partnerships with outsiders, and analysts say such restrictions will need to be scrapped if the country wants to attract foreign drillers…

Lifting the restrictions on foreign oil companies through a constitutional amendment would require a two-thirds majority in Mexico’s Congress and the endorsement of more than half of the country’s state governors. Peña Nieto is expected to face considerable political wrangling from the powerful oil workers union, left-leaning lawmakers and interest groups, which are content with their slice of the status quo, even as overall production has slipped…