Related Articles
Forward article link
Share PDF with colleagues

Mexico: Compromises more likely following Pemex referendum

A REFERENDUM organised by an opposition political party on the future of state-owned Pemex produced a thumping majority against allowing greater private-sector involvement in the oil sector. That does not spell the end of government attempts to push through reforms aimed at greater liberalisation of Pemex, but it may make compromises more likely.

Discussion of Pemex among Mexicans is often contentious, given its iconic role as the country's biggest revenue earner – providing nearly 40% of government income – and as a large employer. Indeed, the company's status as a publicly owned entity is enshrined in the country's constitution

However, the national oil company has been struggling to fund investment – particularly in expensive deep-water exploration, deemed essential to reversing the country's declining oil production – prompting the centre-right government of President Felipe Calderón to push for greater private-sector involvement. Pemex also has a chronic shortage of refining capacity, which Calderón wants to see alleviated by contracting out oil refining to third parties. He has put legislation before the Senate that he hopes will allow all this to happen without falling foul of the constitution.

The opposition Democratic Revolutionary Party (PRD) arranged the referendum, held in July and August, aimed at demonstrating public opinion was against the president. This was duly achieved, with more than 80% of those taking part in Mexico City voting against the idea of private-sector participation in production, transportation, storage and refining of oil resources. In some of states outside the capital, the referendum no vote exceeded 90% of the total.

The referendum was non-binding and the low turnout – estimated at around 11%, or just 2 million people, in Mexico City – was low enough for the government to question the credibility of the exercise. But the outcome was an embarrassment for the government and may lead it to show a greater willingness to compromise on its objectives when Congress reconvenes in September.

The crux of the government's case is that Pemex is effectively bankrupt – its liabilities have exceeded its assets in some recent years – and it is, therefore, in no position to boost its dwindling reserves from offshore exploration or expand refining capacity without a cash injection from the private sector. On the other side of the argument, some claim that over-reliance on Pemex to prop up government finances has exacerbated the situation.

"Pemex generates huge profits, but pays an excessive and disproportionate tax bill. Between 1998 and 2005, Pemex generated a profit of $256bn, while paying $284bn in taxes," said Manuel Pérez-Rocha, an associate fellow at Washington-based Institute for Policy Studies, in a recent analysis for the Foreign Policy in Focus think-tank. He claims taxes paid by Pemex as a percentage of profits are four times the norm for other Mexican companies and perhaps three times more than oil companies elsewhere might pay in taxes.

Pemex's second-quarter results, announced at the end of July, showed a 56% drop in net profits from the year-earlier period to around $1.6bn. The need to import almost 40% of the country's oil requirements, in part because of the domestic refining shortfall, offset rocketing revenues, which jumped by 29.6% as a result of the high oil price.

Also in this section
Saudi Arabia's Vision 2030 looks blurry in Khashoggi aftermath
18 October 2018
International reaction to the disappearance of prominent Saudi journalist Jamal Khashoggi will lead, at very least, to delays to the kingdom’s ambitious reform programme
South Africa urgently seeking gas as energy transition stalls
18 October 2018
South Africa’s power sector plans envisage a big role for gas, but first the country needs to find the feedstock
Senegal and Guinea-Bissau deal faces domestic pressures
17 October 2018
Guinea-Bissau is eager to kick start exploration in acreage shared with oil-rich Senegal, but it’s slow going