MEXICO: Pemex Oozes Corruption


MEXICO CITY - Funds belonging to the Mexican state oil monopoly, Pemex, have
paid in recent years for liposuction treatment for the wife of the
company's chief executive, a presidential candidate's campaign,
contracts with firms facing legal action, and the whims of trade union
leaders who are not required to account for their expenses.

"Pemex is a can of worms. If you do something right, they come
after you; if you shut up about some irregularity, they reward you;
and if you take part in the corruption, you profit," a Pemex
worker told IPS.

"I'm not saying everything is like that -- there are also
honest people," added the worker, whose name is withheld for his

The employee said that after he replaced several worn-out parts of a
gas valve, a group of internal auditors criticised his work, saying
they had found "too many foreign parts," and ordered him to
put the originals back in place.

He said that when his boss protested, he was accused of a bias in
favour of a private supplier and an investigation against him was

The 70-year-old Pemex, the biggest company in Latin America, which
employs 154,761 people, 125,523 of whom belong to the powerful oil
workers union, is facing severe financial difficulties and is in dire
need of upgrading its technology infrastructure. Moreover, Mexico's
proven oil reserves are expected to run out in nine years.

Billions of dollars are lost to corruption which, according to
observers, is deeply rooted in an opaque administration choked with
red tape, and in political and economic vested interests.

In April, the conservative government of Felipe Calderón proposed
reforms of the company, which would include the creation of an audit
committee in charge of ensuring transparency, and would give Pemex
greater freedom with respect to making decisions on managing its
budget, making purchases, reinvesting earnings in production and
exploration and contracting out to private companies.

However, the leftwing opposition parties are fighting the reforms,
which they consider privatisation in disguise.

According to a prominent Mexican nongovernmental organisation, Fundar
- Centro de Análisis e Investigación (Centre for Analysis and
Research), the government's proposed reforms would "encourage
opacity and corruption."

"The proposal paves the way for possibilities for associations
with private parties in a wide range of activities in the industry,
without the parallel creation of precise mechanisms to guarantee
transparency and accountability," while giving the executive
branch "excessive discretionality in running Pemex," says
Fundar, which is dedicated to promoting citizen participation and the
rule of law.

Legislators have agreed to hold a wide-ranging debate from May 13 to
Jul. 22, on overhauling Pemex, a symbol of nationalism and national
sovereignty in Mexico.

But how much of a role does corruption play in Pemex's current
crisis? No one can say with any certainty.

Documents from the Auditoría Superior de la Federación (Federal
Audit Office), which were seen by IPS, show that in 2006 alone -- the
last year for which information is available -- 157 million dollars
were detected in expenses in exploration and the payment of services
that had not been duly approved and explained, and which have not yet
been clarified.

Lawmakers from the opposition Progressive Broad Front, an alliance of
leftwing parties, are calling for the creation of a "truth
commission" to carry out an in-depth investigation of causes of
corruption and specific cases in Pemex before any reform can be

There is a continuing perception of opacity, corruption and
inefficiency in PEMEX, a company that is the booty of politicians and
contractors alike, said oil analyst David Shields, who is based in
Mexico City.

It is a secret society that operates far from public scrutiny, and
which generates enormous quantities of money that is distributed at
the discretion of the political system, he added.

Political scientist Aroldo Romero said that in Pemex, any financial
movement, contract or purchase, even of small tools, is fraught with
red tape, with the final decision almost always lying with the Finance

"Many bureaucratic steps must be taken, and at any number of
them, there are people who have learned to take economic advantage of
the situation," Romero told IPS.

The draft law submitted by the Calderón administration would
incorporate independent experts without conflicts of interest on
Pemex's board, which is currently made up of representatives of the
government and the oil workers union.

The government argues that the reforms, which oil industry experts say
must be discussed urgently due to the country's rapidly diminishing
reserves and the growing imports of fuel -- 40 percent of domestic
consumption is covered by imports -- are aimed at giving the company
greater autonomy to sign contracts with foreign firms better equipped
to carry out deep-water drilling and exploration.

But Fundar says the initiative actually runs counter to that stated
purpose, because "the executive branch would be in charge of
appointing the four new members to the Pemex board of administrators,
as well as a commissioner, under the apparent premise that the
president is ultimately responsible for adequate oversight."

Furthermore, "the board would be presided over by the energy
minister, who forms part of the executive branch," adds

The government is not proposing, however, a modification of the
constitution, which establishes that the country's oil belongs to
all Mexicans, and prohibits direct private investment in Pemex.

What Calderón is seeking is to modify legislation so that the oil
monopoly would be able to establish flexible contracts with private
firms, which would receive payments based on their performance, but
not with revenues obtained from crude produced in Mexico.

The proposal would allow local and foreign private firms to take part
in refining, transport, storage and distribution of crude and its
by-products through a permit system.

But the left is opposed to the proposed reforms, seeing them as an
attempt at privatisation, and arguing that they would lead to even
greater corruption.

In addition, the leftwing opposition sees as a bad sign the fact that
Interior Minister Juan Camilo Mouriño, accused of irregularities in
the oil industry, remains in the cabinet.

Between 2000 and 2004, Mouriño signed seven contracts with Pemex for
a total value of four million dollars as the representative of his
family's transport and fuel companies, while he was a member of
Congress, chairman of the energy commission in the lower house, and
later an adviser to the energy ministry.

Investigative reports by journalists and denunciations by politicians
also indicate that after he was appointed to the cabinet, Mouriño
named people linked to his family's companies to key posts.

The investigation into the case continues, but the minister has not
been removed.

Luis Rubio, president of the non-governmental Centro de
Investigación para el Desarrollo (Centre for Research on Development),
said Calderón's proposed reforms have positive aspects like
freeing Pemex from "the system of controls by which laws
governing public works and public employees guarantee that everything
is always paralysed, without curbing corruption."

In July 2007, Pemex director Raúl Muñoz was fined 80 million
dollars and banned from holding public office for 10 years, for the
misuse of funds and the illegal transfer of more than 170 million
dollars to the oil workers union.

Muñoz also used12,500 dollars in Pemex funds to pay for two
liposuction surgeries for his wife.

There are abundant books and investigative reports showing that trade
union leaders, used occasionally as allies by recent governments,
obtain special funds that go towards things like building vacation
homes or buying first-class airplane tickets.

Adrián Lajous stepped down as Pemex director in 1999 after publicly
disagreeing with the government of then president Ernesto Zedillo
(1994-2000) over the tax system under which most of the company's
earnings go to the state.

Lajous, who frequently clashed with the oil workers union, was
succeeded by Rogelio Montemayor, a former Institutional Revolutionary
Party (PRI) senator and governor.

Montemayor is facing ongoing legal action, accused of illegally
transferring more than 140 million dollars to the Pemex union -- money
that ended up in the PRI coffers to help finance the election campaign
of the party's candidate, Francisco Labastida, who was defeated by
Vicente Fox (2000-2006).

The oil company's reputation of corruption is so deeply rooted that
in late 2007, a group of con artists had no problem selling around 200
people documents that supposedly guaranteed that they would be put on
the company's payroll.

One of the victims of the scam, who paid 6,000 dollars for the
document, told IPS that "with what you see and hear about Pemex,"
the sale of spots on the payroll didn't sound too far-fetched.

In October 2007, at least 21 workers were killed when the oil platform
on which they were working in the Gulf of Mexico collided with an
undersea oil well. The workers died when their lifeboats broke up in
the storm that was raging as they fled the platform. In the face of
questions about the seaworthiness of the boats, suspicions arose that
they had been acquired in irregular conditions.

In September, Paradigm B.V., a provider of "enterprise software
solutions" to the oil and natural gas industry, paid a one
million dollar penalty for making "improper payments" to
officials in China, Indonesia, Kazakhstan, Mexico and Nigeria.

In Mexico, the company, which is headquartered in the Netherlands but
has its principal place of business in the United States, had bribed a
Pemex official to obtain contracts in 2004 and 2005.

And in March 2007, an independent investigation revealed that Pemex
had contracted, for drilling and maintenance work, the companies
Ámbar Mexicana and Global Drilling Fluids de México, whose
shareholders had a criminal record of forging documents and had been
accused of tax fraud, and one of whom had even been

Despite their dubious
background, Pemex granted the two companies contracts worth around 170
million dollars during the Fox administration. (END/2008)
AMP Section Name:Natural Resources
  • 184 Labor
  • 185 Corruption

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