Enrique Peña Nieto proposes energy reform while on the campaign trail in summer 2012.
On December 21, 2013 Mexico’s president, Enrique Peña Nieto, posed for the cameras holding the official decree ending the 75-year history of the national oil company, PEMEX. The decree also closed the era in which Mexico’s electrical generating and distribution system had been under the control of two public institutions—Central Light and Power (LyFC), from 1960 to 2009, and the Federal Electricity Commission (CFE), from 1937 to 2013. In a literal sense, neither PEMEX nor CFE will cease to exist, but they will quickly become mere shadows of what they were: the two largest firms operating in Mexico. In response to these comprehensive changes, noted public intellectual Arnaldo Córdova has acknowledged that “the Constitution is dying,” while Cuauhtémoc Cárdenas declared: “Never, throughout our history as an independent nation, has the country seen such a dismantlement of the protections to our sovereignty and self-determination.”1 For its part, the Mexican government immediately saturated the news media with full-page ads, the most prominent of which declared: “The oil will continue to belong to the Mexicans.”
The actual legislation and the manner in which it will be put into effect are complex—partly to be determined in 2014. Now, instead of working with PEMEX under a set-fee service-contract agreement, private corporations can pursue long-sought profit-sharing arrangements in oil and gas production. They may obtain licenses and contracts to operate their own oilfields. Technically, while the hydrocarbons are in the ground, the Mexican state will remain their sole owner. At the wellhead the property will be transferred to the private “owner,” who can also “book” the as-yet underground “proven reserves.” Being able to book these reserves in their annual accounting statements is all-important to the transnational oil giants now poised to sweep into Mexico because such “proven reserves” constitute the prime basis for valuing these companies and determining their stock share prices.
Mexican critics have endlessly portrayed the profound policy changes of December as entreguismo—the handing over of national sovereignty to foreign interests. They evoke the imagery of the pre-revolutionary era of the late 19th century, when U.S. President Grant referred to Mexico as a “magnificent mine” for the U.S. taking. This endemic approach habitually overlooks the ways in which large Mexican corporations work the levers of political policymaking for their interests. Mining corporations, including the Mexican giants, currently hold roughly 25% of Mexico’s territory under lucrative, essentially un-taxed mining concessions—acquired by paying between 18 cents and $3.88 per acre. Quietly slipped into the new legislation was authority for the mining giants to drill for oil and gas in these vast territories.2 Leaping first to grasp this opportunity has been Grupo Mexico: Mexico’s largest mining corporation announced its plans to pursue shale-gas drilling within its concessions during 2014.3
CFE’s creation as a public firm was part of a larger program to strengthen the agrarian sector through the provision of rural electrical power, beginning in 1937 under President Lázaro Cárdenas. In 1960, President Adolfo López Mateos, following up on a decades-old dispute over the management and reinvestment practices of foreign-owned electric-power firms that then controlled roughly 70% of the market, nationalized the industry through a public buyout, creating Central Light and Power. But in 2009, President Felipe Calderón, by decree, “liquidated” Central Light, including all 44,000 workers. Considered audacious at the time, Calderón’s “restructuring” of the electrical power industry was an important harbinger of things to come.
CFE will now operate as an administrative entity, owning transmission and distribution systems, while private firms can own and control power-generation activities, primarily aimed at industrial users. Currently planned for completion by 2018 will be 27 new thermoelectric plants—majority owned by private companies—along with 10,000 kilometers of new gas pipelines. All in all, private and public investments in the new electric power industry are scheduled to total an impressive $63 billion.4 Of this, $50 billion will be devoted to revitalizing the pipeline grid, with the majority of the outlays coming from the government.
Both PEMEX and CFE enjoyed, until December, the highest status possible for state-owned entities. They were declared “social” in character, qualified as services “traditionally offered by the state” and denominated “strategic.” As a natural monopoly, PEMEX produced “economic rents”— extraordinary profits that sellers obtain through the valorization of non-renewable natural resources. As a “strategic” sector these profits were collectively owned through the Mexican state. This status was traceable back to Article 27 of the 1917 Constitution, which claimed all water and subsoil resources to be, ultimately, the property of the nation.
But now PEMEX and the CFE have been declared “productive businesses of the state” having the same status as any private entity, national or foreign. As such, the labor unions of these two vast entities now must convert from their special status—including participating in numerous decisions as members of the administrative councils of PEMEX and the CFE—to that of “industrial unions.” Their wages and benefits will now be determined through still-undefined forms of negotiation with the two former para-state firms and all other private and public/private entities and subcontractors (national and transnational) that may be formed as a result of the new legislation.5
For the roughly 98,000 employees of the CFE and the 151,000 of PEMEX, round 80% of whom are members of the Oil Workers Union, the likelihood of massive layoffs is unknown, but widely anticipated. Given the fact that a new national labor law was passed in late 2012 (to increase the “flexibility” of contractual agreements and lower benefits to the detriment of the newly hired) it is virtually certain that the national and foreign firms that will now enter the energy sector will not pay at the same rate as before. Generous benefits paid by PEMEX and CFE, including retirement programs that can pay 100% of the previous wage, will soon become only a nostalgic memory. Presently, labor costs account for 64% of PEMEX’s annual expenditures (after outsized taxes have been paid to the state), whereas oil refineries in the United States allocate as little as 10% for labor.6
PEMEX towers over the Mexican economy—being the largest firm—with annual sales in 2012 equivalent to the combined sales of the second-through-fifth-ranked Mexican firms (including CFE, which was number four). In 2013 PEMEX was producing 3.6 million barrels of oil (or gas equivalent) per day, ranking it as the world’s eighth-largest oil corporation. Sales in 2012 were $148.7 billion. However, 55% of this income was taxed away by the federal government, leaving little for new exploration, production, or cutting-edge technologies.7 PEMEX’s assets were valued at roughly $416 billion in 2012 according to Forbes—nearly 25% larger than ExxonMobil’s, the world’s fourth-largest producer in 2012.8 According to industry data drawn from a range of sources, of the three largest oil producers in Latin America in 2012 (all then state-owned) PEMEX was the least efficient. On a barrels-per-day of oil and gas equivalent per employee basis, Mexico’s yield was roughly 24 barrels, Venezuela’s PDVSA produced 25 barrels, while Brazil’s Petrobras reached 31 barrels. Given its higher degree of efficiency, it is worth noting that Brazil’s national development project is centered on Petrobras.9 In industry circles, the once-esteemed PDVSA is now regarded as hopelessly inefficient even though it slightly outdoes PEMEX.10
PEMEX was formed in 1934 by President Abelardo Rodríquez to promote a “genuinely national” oil industry, but foreign oil companies owned and controlled Mexico’s oil. Difficult conditions provoked oil workers to strike 1,892 times from 1935 through 1937.11 After a prolonged dispute between the oil workers union and the 16 oil companies then operating in Mexico, President Cárdenas nationalized the industry in 1938—an action well remembered in the Big Oil circles of Texas.12 It was not, in fact, until 1952 that PEMEX found its footing. Until then it fed the international oil majors’ contemptuous claim that they would be eventually asked to retake the Mexican oil industry, for Mexico’s benefit.13 It appears that now, in the combined wisdom of Peña Nieto’s centrist PRI party and its close allies in the far-right PAN party (which held the presidency from 2000 to 2012) the international oil industry was clairvoyant—if a bit premature.
From 1952 through the 1970s, PEMEX enjoyed its “golden age.” In 1966 the Mexican Petroleum Institute (IMP) was created to promote technological autonomy. A stream of patents and new technology quickly ensued, as did major oil discoveries in the Sonda de Campeche in 1978, which arose from synergies between the IMP and PEMEX. This event vaulted Mexico into the big leagues as a major oil exporter.14 Only four years earlier Mexico had, at long last, out-produced its previous record year, established in 1921. By 1978 production had doubled from the 1974 level and by 1982 production had leaped 126% above the 1982 level.
Giddy with the effects of the “resource curse,” President José López Portillo, shortly before the crash of 1982, declared that Mexico’s problem was that of “managing abundance.” Then neoliberalism was introduced from the United States via extremely high interest rates imposed on the financial markets: oil prices plummeted, making the rolling-over of Mexico’s then-massive foreign debt impossible, causing default.
Turmoil and a prolonged economic downturn from 1982 through 1988 brought a democratic insurgence into the presidential election, with the National Democratic Front’s candidate, President Cárdenas’s son Cuauhtémoc, actually winning the election, in large part due to PEMEX’s union leaders’ deep-pocket support for this insurgency.15 Using its vast institutionalized powers to fraudulently negate the Front’s victory, the PRI under President Salinas first lashed out at PEMEX’s union in 1989: Its nationalistic leadership was purged, the many exceptional benefits then provided for workers were drastically curtailed, and roughly 62,000 jobs were eliminated. Then, the company restructured itself, dividing all activities into four subsidiaries: production, refining, gas processing, and distribution and marketing. This step further weakened the union’s ability to influence national policy by forcing it to bargain independently with each subsidiary.16 The labor contract of 1989 specifically allowed for private contractors to participate in a wide range of profitable activities heretofore limited to PEMEX, including exploration, perforation (onshore and offshore), construction, maintenance, and distribution.17 PEMEX’s de facto privatization, essentially began in 1989, and included the reclassification of a broad range of petrochemical products as “secondary”; this allowed the Mexican private sector (and some transnational firms) to own chemical plants and produce approximately 70% of all petrochemical products.18
*
President Calderón attempted to further privatize PEMEX in 2008, but met stiff resistance from progressive and nationalist forces. The outcome of this confrontation may partially explain the lassitude of the opposition forces in 2013, as well as the extreme tardiness of its tepid resistance to the all-out PRI/PAN drive to achieve privatization. With great success, the PAN had used fast-track politics—bypassing the normal sending of the bill to Chamber of Deputies committees—to sweep through legislation and promote a new labor law in 2012. Forewarned though they were, the opposition failed to grasp the new tactics used by their opponents to pursue the neoliberal project. When this project to achieve the institutional and ideological realignment of social power meets with failure—as it did in 2008—it fails forward, gaining strength through redefining its methods.19
Two decades ago, to the lasting disappointment of the Houston-based cluster of oil industry giants, including ExxonMobil and Shell, as well as transnational oil service companies including Schlumberger, Halliburton, and Baker Hughes, the Mexican negotiators of the NAFTA agreement were willing to give away everything but the oil sector. Chapter 6 of the agreement was devoted to “energy.” This was the one area where the Mexican negotiators essentially refused to budge on a range of issues—they never considered any form of foreign direct investment for the sector.20 Now, because of NAFTA, U.S. oil firms will have preferential treatment and access. The original U.S. initiative to build a North American power bloc (based on cheap Mexican maquiladora labor and abundant energy supplies) to rival those of Japan-Asia and the European Union will experience its strongest boost since 1994. Massive, if not yet calculated, petroleum supplies abound in Mexico’s unexplored deep-water oceans and in unexploited shale-gas fields. U.S. companies have the advanced technologies, and the investment capital, to tap these reserves. The geopolitical implications may be sweeping: according to Mexico’s under-secretary of state for North American Affairs, the NAFTA bloc—due to energy privatization—will quickly become the globe’s most important energy power.21 The foreign scramble for this energy treasure can now resume. After a 75-year wait, the Houston oil barons can once again proclaim—with only slight exaggeration—“the oil is ours” for the taking.
1. Arnaldo Córdova, “El desmantelamiento de la Constitución,” La Jornada, December 15, 2013, 11; Chuautémoc Cárdenas, “Rechazo a la reforma energética,” La Jornada, December 14, 2013, 4.
2. Victor Ballinas and Andrea Becerril, “Presiones de EU y Canadá, decisivas en la aprobación de la reforma, denuncia PRD,” La Jornada, December 12, 2013, 10.
3. Adam Williams, “Surprise Mexican Energy Reform Winner Is Copper Miner,” Bloomberg News, January 9, 2014, http://www.bloomberg.com/news/2014-01-09/surprise-mexican-energy-reform-winner-is-copper-miner.html
4. Nortimex, “CFE e IP alistan 63,000 mdd para gasoductos y termoeléctricas,” El Economista, January 8, 2014, http://eleconomista.com.mx/industrias/2014/01/08/cfe-e-ip-alistan-63000-mdd-gasoductos-termoelectricas
5. Paricia Muñoz Rios, “Debe el sindicato de Pemex solicitar nueva toma de nota,” La Jornada, January 8, 2014, 5.
6. Imelda García, “Reforma energética, ¿golpea el poder del sindicato de Pemex?,” ADN Político.com, December 24, 2013, http://www.adnpolitico.com/gobierno/2013/12/24/reforma-energetica-inicia-el-fin-del-sindicato-petrolero
7. Victor Cardoso, “Pemex aportó un billón de pesos al erario,” La Jornada, January 30, 2014, 29.
8. Dolia Estevez, “Mexican TV Billionaire Salinas Pliego Wants Pemex To Be Privatized,” Forbes, February 1, 2013, http://www.forbes.com/sites/doliaestevez/2013/02/01/mexican-tv-billionaire-salinas-pliego-wants-pemex- to-be-privatized/
9. Brazil’s output per worker per day figure is ascending rapidly and will likely do so in future years. On the centrality of Petrobras, see James Cypher, “Brazil’s ‘Big Push’,” in Real World Latin America 2d ed., eds. Fred Rosen and Alejandro Reuss (Boston: Economic Affairs Bureau, 2013): 42-48.
10. See, for example, Jason Simpkins, “Hugo Chavez is Dead, But His Legacy of Inefficiency Will Live On,” Oil & Energy Daily, March 7, 2013, http://www.oilandenergydaily.com/2013/03/07/hugo-chavez-pdvsa/
11. Nora Hamilton, Limits of State Autonomy: Post-Revolutionary Mexico, (Princeton: Princeton University Press, 1982), 217, 238.
12. Hamilton, The Limits of State Autonomy, 216-240.
13. Howard Cline, Mexico Revolution to Evolution: 1940-1960. (New York: Oxford University Press, 1962), 274.
14. SENER (Secretaría de Energía), “Historia del IMP,” http://www.imp.mx/acerca/?imp=hist2, accessed January 14, 2014, 1.
15. Judith Teichman, Privatization and Political Change in Mexico, (Pittsburgh: Pittsburgh University Press, 1996), 173-176.
16. Teichman, Privatization and Political Change in Mexico, 124-126.
17. Fabio Barboso Cano, “El Nuevo contrato colectivo de PEMEX,” Momento Económico 47 (September-October 1989): 28.
18. Daniel Molina, “Pemex: la reprivatización de facto,” El Cotidiano 32 (November-December1989): 31.
19. Jaime Peck, Constructions of Neoliberal Reason. (Oxford: Oxford University Press, 2012), 16-24.
20. Maxwell Cameron and Brian Thomas, The Making of NAFTA: How the Deal Was Done. (Ithaca: Cornell University Press, 2002)36-37.
21. Roxana González García, “Norteamérica será potencia energética: Alcocer,” El Financiero, January 10, 2014, http://www.elfinanciero.com.mx/secciones/economia/49655-norteamerica-sera-potencia-energetica-alcocer.html
James Cypher is Research Professor, Doctoral Program in Development Studies, Universidad Autónoma de Zacatecas, México. His latest book is: The Process of Economic Development (2014).
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