Wednesday, December 18, 2013

VOXXI: A response to Forbes: Corruption in Mexico’s PEMEX

A Response to Forbes: Corruption in Mexico's PEMEX
W. Alejandro Sanchez
December 18, 2013
Originally published:

Corruption in Mexico continues to be one of the main issues affecting the country, including in big companies like Pemex according to Forbes.
On December 16, Forbes contributor Dolia Estevez published a piece provocatively entitled “The 10 Most Corrupt Mexicans of 2013.” As the title entails, Estevez highlights the deeds (and wealth) of high-profile Mexican citizens, from politicians to labor union leaders, who are allegedly (very) corrupt. One of them is Carlos Romero Deschamps, the leader of the workers labor union of PEMEX (Petroleos Mexicanos), Mexico’s state-controlled oil company.
Incidentally, Pemex will see its control of Mexico’s energy industry dramatically altered in the near future.

Corruption for all

It is difficult to not agree with Estevez’ claims that Romero is a fairly corrupt individual. Romero, his wife and children are reported to own various houses in wealthy neighborhoods. Another giveaway about his lifestyle and wealth comes from his daughter, Paulina Romero, who utilizes social media to show off her travels around the world and possessions, such as $12, 000 Hermes luxury bags.
According to Forbes, his union monthly salary is $1,864. A high salary for Mexican standards, but it is hard to see how he could have such an opulent lifestyle. But Romero’s income does not only come from being a union leader. It has been reported that in 2011 he received $21.6 million for “aid to the union executive committee” (what kind of aid is worth $20 million is unclear) and $15.3 million from union dues.
Romero is also known for his political connections, which arguably have helped maintain his high-profile, influential position. Specifically, he has had ties the ruling PRI party (Revolutionary Institutional Party) since 1961. The best example of these ties is that, besides being a union leader, Romero is also a PRI senator.

The end of PEMEX as we know it?

Corruption allegations within Pemex should be placed within the greater picture of the company’s future. In a very ambitious move, Mexican President Enrique Pena Nieto (EPN) was recently successful in getting the Mexican congress to vote in favor of dismantling Pemex’s monopoly of Mexican oil production.
“In coming years foreign companies could invest as much as $20 billion a year in Mexico’s oil sector, thanks to new rules that will allow production sharing,” explains Forbes commentator Nathaniel Parish.
The move was applauded by a recent December 15 op-ed in the Washington Post, which praised how EPN was able to convince the opposition party PAN (National Action Party) to vote in favor of his plan. The article went on to robustly praise EPN, “Mexico is becoming the Latin oil producer to watch – and a model of how democracy can serve a developing country.”
The Post commentary also adds that Pemex, “[a] notoriously inefficient Mexican firm will have a revamped governance that eliminates union members from its board. Private companies also will compete to supply electricity to the national grid, which should lower energy costs for consumers and industry.” The issue about eliminating union leaders is a particularly sensitive one. So far, it is not clear how the aforementioned Romero’s position as a union leader will be affected by EPN’s move.
It is worth noting how the Post’s praise for EPN included how he will now have to make sure his reform is passed without being blocked by either the PAN and other “left-wing legislators.” Said legislators are members of another opposition party, the PRD (Democratic Revolutionary Party).
Cuauhtemoc Cardenas Solorzano, a PRD leader argued in October that his party is not against investment from companies that are not Pemex,  but warned that corruption within the company will not end by opening up oil production. To express their disapproval with EPN’s energy plan, this past November the PRD left the “Pact for Mexico,” a roundtable of sorts between the country’s three major political entities.

Other issues

The question now becomes whether this change in the structure of Mexico’s oil industry will have any effective results.
First of all, whether it is Pemex or other companies controlling the pipelines, security will continue to be an issue. As the Mexican daily La Jonada reported in May, only between the first three months of 2013 there were 730 illegal siphons, in comparison to 377 in the same period of 2012. To better illustrate the insecurity of energy infrastructure, this past Monday, December 16, hundreds of people had to be evacuated after an explosion outside Mexico City. The reason for the incident was that thieves tried to tap into a Pemex natural gas pipeline.
Secondly, it is unclear to what extent energy reforms will bring more accountability and transparency into Mexico’s vital oil industry. Given that Romero Deschamps is also a PRI member and a congressman, it is unlikely that he will be investigated on how he has amassed his significant wealth.
In other words, a re-structuring of Pemex sounds good in theory, and it could very well bring more foreign investment to the country which, the Washington Post optimistically argues, could decrease energy charges for the Mexican population (although other analysts argue the contrary). Certainly, a decrease in gas prices would be welcomed by the Mexican population and this would increase EPN’s popularity.
However, examples like Romero Deschamps demonstrate that corruption is still an endemic problem and if President Pena Nieto wants to demonstrate that he is serious about dramatically changing the culture of corruption in his government and party, he may have to take down fellow party members.

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