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: tjohnson@mcclatchydc.com; Twitter: @timjohnson4

Read more World Wires stories from the Miami Herald

  •  
Pope Francis baptizes 10-year-hold Giorgio Capezzuoli during the Easter vigil service in St. Peter's Basilica, at the Vatican Saturday, April 19, 2014. Pope Francis baptized 10 people Saturday as he presided over an Easter Vigil in St. Peter's Basilica, fulfilling a ritual deep in meaning on the most solemn night of the Catholic calendar. Francis urged the priests, bishops, cardinals and ordinary Catholics gathered for the late night service to remember when they first found their faith. "Do I remember it? Have I forgotten it? Look for it. You'll find it. The Lord is waiting."

    Pope seeks to bring faith to "ends of the Earth"

    Pope Francis baptized 10 people Saturday and urged them to bring their faith "to the ends of the Earth" as he presided over an Easter Vigil in St. Peter's Basilica.

  •  
Friends surround Melquin Merchan, an 18-year-old painter from Aracataca, as he paints a portrait of Gabriel Garcia Marquez in front of the house where the Nobel laureate was born in Aracataca, Colombia, Friday, April 18, 2014. Garcia Marquez died at the age of 87 in Mexico City on Thursday.

    Colombia hopes to share Garcia Marquez remains

    The final resting place for the ashes of Gabriel Garcia Marquez remains unclear. It could be Mexico where he lived for decades or his native Colombia. Perhaps even both.

  •  
FILE - In this file photo taken May 21, 2011, miners work at a legal mining concession in Huaypetue, Madre de Dios, Peru. Government efforts to halt illegal mining have mostly been futile. The miners already have been clashing with police while intermittently blocking traffic on the commercially vital interoceanic highway that links the Pacific coast with Brazil. But officials insist this time they’re serious about combatting the multi-billion-dollar illegal mining trade that accounts for about 20 percent of Peru’s gold exports.

    Deadline lapses in Peru for illegal gold miners

    The clock has run out for an estimated 40,000 illegal gold miners who had until Saturday to legalize their status in a region of southeastern Peru where fortune-seekers have ravaged rainforests and contaminated rivers. The government's vow to enforce a ban on illegal mining is raising fears of bloody confrontations.

Miami Herald

Join the
Discussion

The Miami Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

The Miami Herald uses Facebook's commenting system. You need to log in with a Facebook account in order to comment. If you have questions about commenting with your Facebook account, click here.

Have a news tip? You can send it anonymously. Click here to send us your tip - or - consider joining the Public Insight Network and become a source for The Miami Herald and el Nuevo Herald.

Hide Comments

This affects comments on all stories.

Cancel OK

  • Marketplace

Today's Circulars

  • Quick Job Search

Enter Keyword(s) Enter City Select a State Select a Category