Petropassions and Privatization in Mexico
NOV 2nd, 2013: Enrique Krauze has an editorial in yesterday's New York Times analyzing the resistance to all-but-a-done-deal oil reforms in Mexico, which will probably be voted through by the country’s parliament later this month. It’s a strange little piece. While he covers a lot of ground, illustrating in broad strokes the fight over Mexico’s energy—and economic—future, the essay is most notable for what Krauze leaves out in his implicit defense of the energy privatization.
Krauze identifies three factors animating resistance to Mexican President Enrique Pena Nieto’s proposal to opening the country’s oil sector to foreign investment: the average citizen’s appalling experiences with previous privatization schemes, nationalism, and fears of increased corruption should the country find itself in another oil boom, as happened in the 1970s.
On the first count, Krauze notes that “when Carlos Salinas Gotari, president from 1988 to 1994, transferred ownership of banks, television, and telephone companies from the state to private hands, the general view was that he favored his friends, with lucrative results for the new owners but not for the consumer.” The general view, as it happens, is exactly correct.
During Salinas’ presidency, the number of billionaires ballooned from two to twenty-four, and Carlos Slim—who took monopoly control of the country’s telecommunications company—became the richest man in the world. Not to worry, Krauze assures us, “the Energy Reform is not an act of privatization. Contrary to the opposition’s rhetoric, no property will be transferred to the companies involved.”
Whether Krauze knows it or not, things are not that simple. National Geographic reported earlier this month that Pena Nieto’s success in pushing the reforms through “may rely on a sort of sleight of hand—sophisticating accounting that would allow Mexico and the foreign oil companies to both claim they control the nation’s energy reserves.” Said one Mexican business expert, “it’s more of an issue of semantics. There are ways you can word around definitions to achieve the same goal of booking reserves.”
It hardly matters. Even if property isn’t transferred, billions of dollars will be. The usual suspects, Mexico’s oligarchs, have already positioned themselves to capitalize on the energy reform. According to Forbes, the country’s “entrepreneurs, including Carlos Slim, have formed drilling companies to work under contract for Pemex.
The hottest spot has been in the offshore drilling business. Nowhere in the world are jack-up rigs for use in coastal waters in such high demand; shallow water drilling remains a core competency for Pemex. The leader among Mexico’s indigenous offshore drillers appears to be Grupo B (controlled by Ramiro Garza Cantu), which has what’s thought to be the biggest fleet of shallow-water drilling rigs in Mexican waters and has five new rigs on order at a cost of roughly $1 billion. Guillermo Vogel Hinojosa, vice chairman of Tenaris-Tamsa, has positioned himself as Mexico’s primary steel pipe manufacturer.
As for Slim, his Grupo Carso provides substantial drilling services to Pemex and earlier this year inked a $415 million, seven-year contract to lease a drilling platform to Pemex. In 2011 Carso acquired 70 percent of Tobasco Oil, which drills in Colombia and also owns an 8 percent stake in Argentina’s state-controlled oil company, YPF.
Krauze also fails to remind readers that then-president Salinas had tried to break up Pemex as well during the period in which he was holding a fire sale on state assets. The goal then was the same as it is now: open Mexico's energy sector to private and foreign investment. In the process, Salinas arrested the head of the oil workers’ union, Joaquin Hernandez Galicia, known popularly as La Quina, on trumped up charges of murder. The notoriously corrupt union head, in this instance at least, had been guilty of nothing more than standing up to the government’s plan to sell off Mexico’s oil assets. As La Quina said at the time, “I’m a scoundrel, but I’m a nationalist scoundrel. I believe the property of the nation should be for the people, not for the President.”
As Guillermo Gonzalez Calderoni, a top commander in Mexico’s Federal Judicial Police and the man responsible for forcing La Quina's murder confession, later told New York Times reporters Julia Preston and Sam Dillon, “That guy probably committed a lot of crimes. But he didn’t commit the ones that Salinas put him in jail for.” For his part, Krauze added his name to an open letter arguing at the time that the arrest would help Mexico “advance, no doubt, on the road to democracy.”
Flash forward to 2013. Krauze worries that the world-class corruption that defined Mexico’s government in the past might be resurrected (as if it had ever died in the first place) by the specter of huge profits from expanded oil production. Too late. Again, from Forbes: “Understanding the power of the Pemex workers union to throw sand in the gears of reform, Pena Nieto has been careful not to run afoul of workers. Instead of pursuing corruption charges against powerful union boss Carlos Romero Deschamps (despite ample indications of improper indulgence), the PRI instead made him a senator.” Not surprisingly, one expert notes that “The union is perfectly aligned with the proposals.”
These alarming bits of information notwithstanding, Krauze rejects the opposition’s stance of resistance to the reforms. Instead, he argues that it should focus its energies, despite being outside the ruling governing coalition, on “practical steps” that will help Mexico “avoid another economic fiasco: maintaining tight vigilance over contracts, ensuring the productivity and transparence of new investments, creating a fund for future development (as in Norway), monitoring potential ecological damage, restructuring and modernizing Pemex, and, most important, assuring that profits are not used to expand bureaucracy but are delivered to the Mexican people.”
Shouldn’t the onus for guarding against an oil boom boondoggle be on those proposing the reforms, though, and not the groups resisting them?
As Krauze notes, Pena Nieto and his congressional allies in the Partido Acción Nacional are busy frying bigger fish. Instead of convincing the nation that their privatization scheme would not open the floodgates to increased corruption and a monopoly of profits by the country’s plutocrats, the government is focused on having a “theological debate about the Mexican soul” with the nearly 60 percent of the population opposed to reform.
And for good reason. Any government claims that it will be able to manage the reforms fairly and competently simply aren’t credible. Past privatization efforts succeeded in enriching a select few at the expense of millions more who were left comparatively worse off. From the looks of things, the country is about to experience a repeat performance, which is why popular resistance has been so stiff. As Mexicans well know, the fix is in.
Michael Busch is Opinions Editor for Warscapes magazine.