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Why is there such a fight to reform the world's most antiquated oil company?

By Catholic Online (NEWS CONSORTIUM)
August 6th, 2013
Catholic Online (www.catholic.org)

Mexican President, Pena Nieto, has a plan to reform Pemex, the state-run oil giant. Pemex is important as a pillar of the Mexican economy and a symbol of national pride. However, beset with corruption and inefficiency, the company will continue to decline unless something drastic is done about it.

MEXICO CITY, MEXICO (Catholic Online) - Petroleos Mexicanos, known popularly as Pemex, the company was formed when the Mexican Constitution nationalized all oil and minerals, and seized assets to produce these materials for the good of the people. Currently, 70 percent of Pemex's profits are paid to the government and represent a major source of revenue for the country.

The company is not open to foreign investment either. Now, outsiders suggest this could be part of the reason why the company is operating at least 30 years behind the rest of the world. Mexico has vast reserves which cannot be tapped because the technology and infrastructure are lacking.

To get at this additional oil, Nieto and his supporters have suggested opening the company to some kind of foreign investment. However, populists, such as those in the leftist Democratic Revolution Party, or PRD oppose any potential outside influence, or more importantly, the diversion of profits to outside interests.

In a recent national poll, 65 percent responded saying they opposed opening the company to outside investment.

Since the Mexican Constitution declares minerals to belong to the people, a diversion of funds from the oil industry to outside investors would be illegal, so a constitutional amendment would be required, increasing the complexity of reforming the organization.

In addition to being incapable of efficiently exploring and tapping into deeper reserves, Pemex is also fraught with corruption, and indeed, the oil giant is legendary for its corruption and inefficiency.

The company pays generous pensions, is bloated with a union, and routinely pays money and gifts to politicians that range from designer clothes to private jets.

Meanwhile, the company continues its downward slide. By 2020, Mexico is likely to become a net importer of oil, as opposed to an exporter.

So how the ailing and antiquated company should be reformed is a question on the minds of many citizens and politicians, but there are no easy answers.

Opening the company to foreign investment would bring an influx of cash and technological expertise as well as equipment, which would quickly increase production and efficiency. It would restore sagging profits. Outsiders would also expect the company to reform itself internally, and to resolve issues with corruption to ensure that profits flow along with the oil.

Yet, this scenario would involve money leaving Mexico, money which the people claim should be theirs.

Another proposal involves reducing the tax the company pays to the government from 70 percent to something less. This would leave more money available for the company to upgrade equipment and improve itself without the need for foreign cash.

Yet, this would also mean less money for Mexico and the people.

Reforming the company politically, and reducing the power of the labor union which serves it is hardly considered an option with their power too great.

So, Pedro Nieto has a fight on his hands, one he accepted and pledged to make. However, there is no solution that does not include some kind of pain to the Mexican people. Yet it must be realized that the Mexican oil industry is in accelerating decline and will not serve the people much longer without reforms.

So all that remains is for the people to pick their poison - if the powers that be will let them choose at all.

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