PEMEX and the long road to privatization

OilPrice.com ^ | 20/07/2011 | Andrew Smolski

[bananaman22]

Petroleos Mexicanos (PEMEX) is the state-owned oil company (and natural gas) of México, which since the 90’s has been discussed for privatization like many other state-owned companies in México. The policy of privatization is sometimes called liberalizing the company, however many aspects of privatization need to be taken into consideration when discussing such a lucrative portion of the federal budget for México. PEMEX has 41 divisions, and is a source of Mexican sovereignty, and any talk of privatization will not happen without a strong fight, not only from the left, but also Mexican nationalists who see it as a source of pride. This article will attempt to give a brief summary of these considerations and bring forth an argument on what will happen in the future of PEMEX and its worth for investors.

According to the Mexican constitution (Article 27) all subsurface minerals are the property of the Mexican government, and not the people who own the land where these minerals are found. This has led to 1/3rd of the federal budget being derived from the fossil fuels found and produced in México, and accounting for 10% of all export earnings for the country. However, over the past 5 years the amount of barrels per day being produced has been declining, mostly due to the difficulty that surrounds new oil exploration, the need for more advanced technology and risk taking investment. With the need for investment and most of the profit utilized as expenditures in the federal budget, PEMEX lacks the resources necessary to continue to produce optimally and also to reach its goal of 600,000 barrels of crude per day by 2021.

None of this means that there is no longer oil in México, with one set of fields, Chicontepec, having an estimated 9 billion barrels of oil if proper investment and technology existed. Instead, since the 90’s the problem has been the obstacles to liberalize the company, with some parts almost being liberalized (such as PEMEX Petroquímica) when the plans were met with a popular backlash, typically from the union movement. $2 billion of assets in PEMEX were sold off, but this is quite meager in comparison to its size of $80.6 billion in revenue. PEMEX has around 140,000 employees, which means it has a large and relatively powerful union, but that has come under attack as of late. Full article at: PEMEX and the long road to privatization

[ken21]

ironic that the pri lost its near-century hold on the presidency,

but pemex survived.

now, the pri is advancing again.

[yefragetuwrabrumuy]

This is a very different situation than what you would see if PEMEX was a US company.

That is, most everything of real value in Mexico is owned by about 12-15 wealthy families. They have the “Old Europe disease”, that the wealthy do not want any more wealthy people, but want to be surrounded by peasants, barely tolerating even a merchant class.

Compare two multi-billionaires, the two wealthiest men in the world.

Bill Gates has created probably a dozen or more billionaires, hundreds of $100m+ multimillionaires, and tens of thousands, or more, “ordinary” millionaires and multimillionaires. No skin off his nose. He is not diminished in any way by their success.

Carlos Slim of Mexico has created no billionaires, and few, if any, even millionaires, and if he did, they were exclusively members of the top families, the next generation of the elite. From his point of view, his workers should always only get minimum wage, and most of their superiors, just a little more.

So what about PEMEX, the crown jewel of Mexico? If it was in the US, when privatized, there would be a huge rush of ordinary people to buy its stock, hoping to become wealthy with its corporate success.

But in Mexico, if PEMEX is privatized, the only people who will own it are from the families. The common man can go get knotted. Mexico’s crown jewel will be split into costume jewelry for the elites.

There is an amusing epilogue, however. While Carlos Slim is a huge success in Mexico, whenever he invests in the US, he loses his shirt. For example, being a media type, he decided to buy a bunch of common stock of the New York Times.

Yes, he’ll lose that money, too.