Nationalized oil? Surely we jest?

Nationalized oil? Surely we jest?
Calgary Herald
Tuesday, September 27, 2005
Page: A16
Section: The Editorial Page
Byline: David Agren
Source: For The Calgary Herald

Less than a year after Ottawa sold its remaining Petro-Canada shares, the prospect of nationalizing the oil industry has reappeared. A Leger Marketing poll, partly conducted before hurricane Katrina struck, found 49 per cent of Canadians in favour.

For a cautionary tale of nationalization run amok, look south. Way south to Mexico, where energy nationalization spawned an unruly monopoly saddled with a crushing debt, inefficiencies, an unscrupulous union and a shameful environmental record. Petroleos Mexicanos (Pemex) surely stands out as exhibit A in the case against government intervention in the petroleum industry.

Pemex is on the brink of insolvency, according to its director, with debts of nearly $50 billion. Company officials admitted after a spate of pipeline ruptures last winter that 68 per cent of its ducts need repair. Thieves -- often abetted by insiders -- heisted an estimated $1.8 billion per year worth of combustibles from the company between 1998 and 2002, taking the loot from refineries, storage facilities and clandestine pipeline connections.

Mexico's consumer protection agency found Pemex franchised gas stations (the only brand in Mexico) shortchange their customers by about $2 billion a year. Mexico's environmental protection agency named Pemex Mexico's worst polluter in 2000.

Many of its problems stem from its massive tax bill. Pemex pays more than 60 per cent of its gross revenues to the Mexican government. Its taxes account for more than one-third of all government revenues. The heavy tax burden impairs its ability to explore for new reserves and maintain its crumbling infrastructure. According to columnist Fred Rosen of The Herald Mexico, one projection said without a sustained investment in exploration and maintenance, Mexico, now the world's sixth biggest petroleum producer, could become an oil importer within a decade.
To provide more money for exploration and infrastructure, the Mexican congress slashed Pemex's tax bill earlier this summer, but President Vicente Fox vetoed the proposed change, saying the revenue shortfall would prevent him from balancing his budget (one of the few legacies he expects to leave after completing an unremarkable presidential term).

The company has long been a political football no politician dares to radically overhaul. Fox proposed modest reforms early in his administration, but ran into intransigent legislators, who balked at the prospect of foreign ownership in Pemex.

The Mexican constitution forbids foreigners from owning or exploiting the country's natural resources. Opportunistic politicians -- most recently populist presidential front-runner Andres Manuel Lopez Obrador -- have long leveraged the fear of foreigners taking over the Mexican oil
industry, coining slogans like, "La patria no se vende" (the homeland's not for sale).

Attempts to improve the company's poor governance have also fallen short. Fox proposed appointing four industry titans to its board in 2001, including Telmex impresario Carlos Slim, Latin America's richest man, who recently called for allowing private investment in Pemex. Opposition lawmakers forced the president to back down. Until Fox ousted the Institutional Revolutionary Party (PRI) in 2000, ending its 71-year hammer lock on power, Pemex and its union allegedly bankrolled much of the PRI's mischief. In the last federal election, Pemex's former director and the Oil Workers' Union allegedly funneled more than $200 million into the failed PRI campaign in a scandal dubbed Pemexgate.

The powerful union protects a bloated workforce of more than 125,000 employees. In previous years, it would blackmail the government into offering generous wages and benefits, threatening violent strikes if its demands weren't met. In a Pulitzer Prize-winning article on the Mexican
justice system, Washington Post reporter Kevin Sullivan profiled a regional union kingpin, whose power a local academic compared to "a medieval court where the king sits there, people line up to see him, and he makes all the decisions."

Union bosses often dictate hiring; nepotism is rife.

While most Mexicans hate corruption, the prospect of foreign (read: U.S.) interests exploiting their resources is unacceptable. The country still marks Expropriation Day on March 18, a reminder of the day in 1938 when then-president Lazaro Cardenas expelled foreign companies from the industry. U.S. lawmakers have tried to link immigration reform to privatization, but Mexican politicians dismissed the proposal out of hand.

An uncompetitive oil monopoly held hostage by an unscrupulous union and grandstanding politicians: Is this what Canadians want?

Calgarian David Agren is a journalist working in Mexico.