Pemex on the move.

Position:COUNTRY REPORT: MEXICO
 
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The state oil company seems be undergoing a reform even before the legislation changes. Will it be enough to catch up with the industry?

A few months ago, when Enrique Pena Nieto was sworn in as Mexico's president, a reform of the energy sector and the state-run pit company were at the top of his agenda. Since the 1930s, the country's constitution created a public monopoly for Pemex [Petroleos Mexicanos], which controls most of the pit industry's value chain, from offshore exploration to selling gasoline. Today, the combination of inhibitive restrictions, systematic under-investment, bad management, and an unruly worker's union has contributed to enormous Losses in the sector, even in times of high-energy prices. The new president promised to make an overhaul part of his "legacy" and his administration is preparing a reform initiative for the second half of 2013.

Yet, just one month into the task, the new government began to realize the breadth of the challenge. As Mexico's Finance Minister assured an attentive Davos crowd that energy sector reform was in sight, the central headquarters of Pemex suffered an unexplained gas explosion that destroyed part of the HR department and left more than 30 dead. Weeks after this abrupt awakening, a report of a 500 million peso [$39 million] zero-interest loan from the company to the powerful union Sindicato de Trabajadores de ta Republica Mexicana, Stprm, was leaked to the press; the government responded by blaming the past administration. Finally, the signs of a weakening Pacto por Mexico [see the article "Pact for Mexico: ?A prosthetic for reform paralysis?"] have left the badly needed energy reform hanging by a thread.

FALLING PRODUCTION AND EFFICIENCY

White many sectors in the country would surety benefit from improved efficiency and openness in the pit industry, the most interested party in transforming Pemex could easily be the federal government itself. Through high taxes and contributions from its current $80.6 billion in revenue, the pit giant funds a third of the government's annual budget. In this sense, the most impactful reform for Pemex might not necessarily be an energy sector reform, but a comprehensive fiscal reform that would allow the state to find alternative sources of income.

However, after almost 10 years of fatting efficiency and revenue in Pemex, with only one in four of its business units registering a profit, change is urgently required. Oil production in the flagship...

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