My Negative Votes on Pemex’s Board

In MEI Market Note 154, THE LOGIC AND OPTIONS FOR ENERGY REFORM (Jan. 10, 2013), we offer the new Mexican government some unexpected advice: Reject any proposal for changes in CFE or Pemex that aspires to make either company more efficient—but only in Mexico.

  1. One of these measures is to merge the three business units of Pemex (gas, refining and chemicals) into just one, keeping only the upstream unit unchanged.

  2. The other idea is to allow an offshore subsidiary of Pemex Gas (PGPB) to play a role as an investor in a major pipeline project that would bring gas from the U.S. to Central Mexico.

Why restructuring of the government oil company in this form is inadvisable

For more than a decade, senior officials from Pemex, the Energy Ministry, Congress and political candidates (including the PRI candidate that is the current president) have flown (at taxpayer expense) to Canada, Brazil and Norway in search of insights about how to restructure Pemex to be “like Petrobras” or “like Statoil,” both state‐majority‐owned oil companies.

The advice that the Mexican visitors received may be summarized in five recommendations:

  1. Legally restructure Pemex as a mercantile company: Pemex, S.A., with a minority of shares available in a major stock market to global investors.

  2. Organize yourselves as quickly as possible to be able to operate outside of Mexico.

  3. Keep your good people in executive positions; don’t switch them out with political appointees every six years.

  4. Find a way to force Pemex to learn to compete, alone, or in collaboration with other oil companies, for the license to explore and develop deepwater prospective blocks on both sides of the Gulf of Mexico.

  5. Develop a credible upstream regulator.

This advice would seem to be that if the Peña Nieto administration wants to “restructure” Pemex, the only meaningful step would be to restructure its legal foundation from that of an agency of the government to that of a commercial entity.

A proposal merely to merge three government agencies (PGPB, PREF and PPTQ) into yet another government agency ignores the counsel that elected and appointed public officials in Mexico had spent a decade and millions of dollars to acquire.

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Written by

George Baker

Baker & Associates offers niche-market business and policy intelligence related to Mexico's oil and gas, power and chemical industries. Over 1,000 reports have been issued in the last 20 years. Subject matter expert and publisher George Baker, who directs the firm, has carried out consulting assignments starting in the late 1970s at the height of the Oil Boom in Mexico. He brings bilingual and bicultural skill-sets to understanding and responding to challenges of business and public policy, coupled with a deep familiarity with the history and idiosyncrasies of the Mexican operating environment.

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