Time for change in Mexico

Pemex, Mexico’s monolithic, government-backed petroleum company, is one of the largest oil producers in the world. It’s also in deep trouble, the Washington Post reports.

In the words of the WP…

“The firm is a listless, legally mandated monopoly propped up on foggy-brained justifications about national pride and sovereignty. Pemex’s bureaucracy is impenetrable, the leader of its union lives extravagantly and, in a recent poll, about 80 percent of Mexicans associated the firm with corruption.

“The state, meanwhile, skims massive amounts of money off the top to fund a third of the national budget, and the company hasn’t managed to use what’s left over to break into deep-water oil extraction or to ramp up oil and natural gas production from onshore shale rock. Though the firm still produces a lot of crude, it is $60 billion in debt.”

Everything was fine when the company had abundant supplies of easy-to-extract oil in shallow waters in the Gulf of Mexico, but that’s now drying up. Pemex’s production has fallen by a quarter in the past decade. Mexico may even suffer the humiliation of becoming a net fossil-fuel importer. All of the country’s major parties now want reform of some kind: President Enrique Peña Nieto proposed his own slate of changes last week. Changing the constitution to lift some of its restrictions on Mexican oil production seems politically doable.

The best option for Mexico’s leaders is to:

  • open up the oil business,
  • reduce the state’s dependence on petroleum revenue,
  • and privatize Pemex, forcing the company to compete against nimbler foreign companies subject to consistent rules and reasonable taxation.

Productivity would increase, as would economic growth. That sort of ambitious restructuring, however, seems far beyond reformers’ imaginations. Instead, Mexico’s leaders appear focused on inviting private investment into the country’s oil sector.

Foreign companies might bring expertise and, more importantly, a financial injection to Pemex projects in deep water or in shale-rock formations. In return, they might get a cut of the profits. Pemex, meanwhile, would try to make itself more efficient and technologically adept, as the government figures out how to let the company keep more of its revenue for further investment.

Read the full article: http://www.washingtonpost.com/opinions/mexicos-oil-monopoly-needs-international-help/2013/08/21/c05e8544-09e7-11e3-9941-6711ed662e71_story.html

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