FocusProtests mount as Mexico energy reform looms

10 August 2013 00:11  [Source: ICIS news]

MEDELLIN, Colombia (ICIS)--Hundreds of workers at a key petrochemical facility in southern Mexico protested on Friday against a joint venture between state-run oil company Pemex and chemical giant Mexichem.

Employees at the Pajaritos petrochemical complex denounced the Pemex-Mexichem alliance as “illegal”, claiming the deal violated the Mexican constitution by allowing a private company to operate Pemex resources, according to local media reports.

Workers also fear the $566m (€425m) deal, signed earlier this year after almost two years of negotiations, will result in job losses, the reports said.

The protests broke out just days before the Mexican government’s expected unveiling of plans to open up the country’s energy sector to private and foreign investment.

The chief element of the plans will be the expected shake-up of Pemex, the world’s fifth largest crude oil producer and the third largest exporter to the US, according to the US Energy Information Administration (EIA).

The company was founded in 1938 following the state expropriation of the country’s hydrocarbon resources, and has remained in government hands ever since.

For many Mexicans, the company embodies the ideal of national independence from foreign intervention. Mexico’s president, Henrique Pena Nieto, has repeatedly ruled out the possibility of privatisation.

However, experts believe that Pena Nieto’s proposals will necessitate a tinkering of the constitution to allow for the possibility of partial foreign management over the country’s hydrocarbon resources, a move that the head of the opposition Democratic Revolutionary Party (PRD) believes will stir further public unrest.

“It is essential that the state of Mexico maintains control of its hydrocarbon resources,” said Jesus Zambrano in a televised interview with CNN Espanol on Thursday.

However, most experts agree that some level of reform is essential. The company has seen a steady decline in production and profitability, and is beset by accusations of mismanagement, inefficiency and corruption.

David Shields, a Mexico City-based independent energy analyst, cites deep-rooted problems at the company that can only be fixed through radical reform.

“In my opinion, the current situation at Pemex, both operational and administrative, is worse than many analysts, both on the left and right, suppose,” Shields said.

According to the analyst, the company’s problems extend to its refining division, where burdensome regulations and political interference cause paralysis in decision-making.

“Pemex Refining is almost incapable of pushing through new industrial projects,” said Shields. “Many don’t come to fruition, others have been delayed for years.”

“Energy reform must simplify rules, processes and structures, streamline projects and rescue Pemex from a downward spiral,” he added.

The need for reform has also been endorsed by the Pemex directorate.

The company’s CEO, Emilio Lozoya Austin, has stressed the need to restructure the company to increase competitiveness, optimise administration costs and improve operational performance.

“Pemex must change to adapt to the new reality and become a more profitable business,” Austin said in a recent statement on the company’s website. “This requires more investment and access to technology.”

The CEO pointed to energy reform in Brazil and Colombia that had enabled both countries to increase production considerably, without resorting to privatisation.

The plans to be unveiled next week will be debated in the new congressional session starting on 1 September, and will require a two-thirds parliamentary majority in order to be ratified.

($1 = €0.75)

By: Simon West

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