Mexico’s state oil giant faces pressure to revamp, slim down


McClatchy Foreign Staff

For generations, one of the sweetest jobs any Mexican could aspire to has been a slot at the state oil giant, Petroleos Mexicanos. No other company in Latin America churns out so much revenue.

Salaries are high, and Pemex also offers fat pensions, a low retirement age and sometimes-modest – even barely existent – workloads.

“There are thousands of people paid by Pemex each month who don’t have a job to do,” said Duncan Wood, the director of the Mexico Institute at the Woodrow Wilson Center, a nonpartisan research center in Washington.

But the sclerotic company has seen crude oil production fall each of the past eight years, endangering its role as the ATM of the federal government. The company supplies roughly a third of the Mexican government’s operating revenues.

In an announcement full of political theater, President Enrique Pena Nieto submitted a proposal to Congress this week to open Mexico’s energy sector to foreign investment. That move would end a 75-year monopoly by Pemex on most oil exploration, production and distribution.

Protecting his flank from nationalist attacks, Pena Nieto declared that Pemex would remain a totally state-owned company.

But experts say Pemex and its 151,000 employees are in for some turbulent times. It faces reorganization, possible flight of some of its best engineers to world-class oil companies soon to enter Mexico and efforts to shine a light on some of its opaque internal practices.

“It’s going to have to overhaul itself. Some, it can do on its own, but some of it it’s going to have to be pushed,” said John D. Padilla, the managing director of IPD Latin America, an energy consulting service in the region.

Padilla called Pemex “extremely bloated” and said he thought it could get by with a third of the employees now on its payroll.

“Mexico needs Pemex, but it needs a different Pemex,” said Juan E. Pardinas, the director of the Mexican Institute for Competitiveness, a research center that supports open markets. “We need a Pemex which is more efficient, which is less corrupt, a Pemex that works more as an oil company than a government entity.”

The Pemex union, one of the most powerful in the hemisphere, was long a pillar of support for the Institutional Revolutionary Party, which ruled Mexico for most of the 20th century and is back in power under Pena Nieto.

“Pemex is owned by the union,” Pardinas said. “Mexico has to renationalize the oil industry from the union leaders.”

Despite its problems, Pemex is a source of pride to many Mexicans, who see the company as a symbol of national sovereignty and strength.

“Pemex is not for sale and will not be privatized,” Pena Nieto said in a televised message Monday night. “Pemex will grow stronger and modernize.”

He said the company would be reorganized into two divisions, one focused on exploration and production and the other on processing oil and gas into fuel and petrochemicals.

Among state-controlled oil companies, Pemex has the lowest rate of crude oil produced per worker. A study earlier this year by Mexico City’s Research Center for Development found that each Pemex worker produced an average of 24.5 barrels per day, lower than Petrobras workers in Brazil (28.9), Ecopetrol S.A. workers in Colombia (76.4) or Statoil workers in Norway (78.4).

Energy Secretary Pedro Joaquin Coldwell said this week that no layoffs were expected as part of the sector opening, but analysts said they thought such remarks aimed to avoid antagonizing the union during debate on the proposal.

“To get anything close to what they ended up proposing, they had to have the union on board,” said Jeremy Martin, the director of the energy program at the Institute of the Americas, a La Jolla, Calif., body that promotes regional cooperation.

Inevitably, experts said, Pemex will have to slim down its payroll.

“The challenge is: How do you keep your top talent and shed people who are dead weight?” Padilla said. As global companies enter Mexico, recruiters will shop for Mexican engineers. “They’ll be extremely valuable in the private sector.”

Among the structural problems Pemex faces, in addition to seeing the central government siphon off its cash, are massive unfunded pension liabilities, which the Research Center for Development has estimated at $104 billion.

“It’s about 10 percent of Mexico’s GDP, or one year’s worth of gross revenues of Pemex,” Padilla said.

Pemex employees, a league apart among Mexican government workers, contribute nothing to their pension plans. They retire after 30 years of service, receiving 100 percent or more of their final salaries until the day they die. Many begin working in the fields at age 18.

The union boss at Pemex, Carlos Romero Deschamps, has assets to match his power, including a massive yacht, waterfront condominiums for his children and him in Cancun and Miami, and a gold Swiss Audemars Piguet wristwatch worth the annual salary of many Pemex employees. His daughter posted Facebook photos last year of her trip to Europe. She and her three pet English bulldogs – Keiko, Boli and Morgancita – stayed in some of Europe’s most expensive hotels.

Corruption is also a problem in the upper ranks of Pemex. Dozens of managers have been sanctioned or have open cases against them for kickbacks or rigging bids, especially in the overseas trading division, according to the company’s latest annual report to the U.S. Securities and Exchange Commission.

If Mexico’s Congress approves the plan to open the doors to foreign oil companies partnering with Pemex to explore for and produce oil, the company will be forced to adopt greater global efficiencies and practices, analysts said.

“Partnerships of Pemex with international oil companies will help to curb corruption,” Pardinas said. “It’s going to be a very complicated process inside the company.”

A massive explosion ripped through the Pemex headquarters Jan. 31, killing 37 people. Some Mexicans questioned whether a probe exploring the cause of the blast could be believed. That distrust has come to symbolize the opacity of the company. It took investigators six months to cite a buildup of gas and to declare definitively that no foul play was involved.

Pena Nieto seems to have one eye fixed on strategies to clean up the company. One key aspect of the reorganization, he said this week, would be to improve “conditions of transparency and accountability” in Pemex.

Even as Pena Nieto’s team has yet to show its full hand on plans for the company, the problems Pemex confronts put the company in a weak position to resist change.

“There hasn’t been another (national oil company) that’s walked into . . . a situation like this in such a weakened state,” Padilla said. When Brazil and Colombia overhauled their state oil companies in decades past, the companies “were not burdened with the kind of debt or obligations that Pemex has right now.”

Email:; Twitter: @timjohnson4

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