The Great Temptation: Oil in Mexico, Part II (translation)

Today, the conclusion of my two-part translation of excerpts from Andrés Manuel López Obrador's The Great Temptation, available in Mexico from Grijalbo.

The Great Temptation: Oil in Mexico
by Andrés Manuel López Obrador
translated by Kurt Hackbarth

“The Gangrene of Corruption”

This entire disaster in the nation’s energy sector has been fed by the corruption that reigns in the government, Pemex and in the Federal Electricity Commission. This is the evil that most afflicts Pemex and torments the nation. Though the examples of corruption are endless, I will limit myself here to a few of the most current cases which I consider relevant.

The first contract for multiple services [contrato de servicios múltiples] which was granted – in violation of the Constitution – to a foreign company was signed when Felipe Calderón was Secretary of Energy and President of Pemex’s Administrative Council. On November 14th, 2003, without any other company having participated in the bidding, a contract for $2 billion 437 million dollars was awarded to Repsol of Spain to explore natural gas deposits in the Burgos Basin (Cuenca de Burgos).

In the annex to this multiple-services contract with Repsol, entitled “Catalog of Maximum Prices,” it is shown how the costs of the services contracted for and their astronomical overpricing were arrived at: for the acquisition of infrastructure, an additional 120% over and above the direct cost is stipulated; in the case of maintenance services, up to 320% above the direct, daily cost. Moreover, the original per-unit price is to be applied independently of whether the contracted company uses new or used materials; it is the contractor itself that has the “absolute responsibility” to inspect, test and certify the materials, and if that were not enough, a series of additional, unforeseen expenses are added on such as import fees and tariffs, labor taxes, taxes for the acquisition of premises and permits, licenses and public registries.

The worst of it is that these contracts have proven beneficial only for the foreign companies, but unproductive and downright harmful for the national interest. Pemex agreed to pay a sum total of more than $5 billion for all of the unfair contracts it shelled out to Repsol, Tecpetrol, Petrobras, Teikoku, Schlumberger and Haliburton, among others, using the justification that natural gas production would increase by 50% in the Burgos Basin, which would have meant 500 million cubic feet per day. In five years, however, these companies have increased production by only 63 million cubic feet, going from 126 million – the level of production Pemex was obtaining when it handed the fields over – to 189 million cubic feet; an increase, that is, of 4% of the estimated production in Burgos. Over the same period, Pemex increased production in the fields it itself operated from 1 billion to 1 billion, 347 million cubic feet. In short, the multiple-services contracts have increased production only very marginally, but at an elevated cost. They have been a disaster.

“Useless Investments”

For the retooling of the Cadereyta oil refinery, the companies Sunkion Limited, Siemmens and ICA were contracted in 1997. The job was supposed to be concluded in July of 2000, but it went on more than double the amount of time agreed upon. The work was handed over unfinished, with irregularities, and with the per-unit prices paid being much higher than as originally contracted. A November 2001 audit quantified the losses, up to then, at over a billion dollars. Pemex, which had renounced jurisdiction of the national courts, was sued by the consortium in international tribunals. Due to the lack of an adequate defense, it was obliged to pay an additional $630 million dollars. Not one person has been held officially responsible, much less sanctioned, to the present day. The cumulative loss to the nation has been at least $1 billion, 630 million dollars.

The contracts with foreign companies in Chicontepec, Veracruz also demonstrate, at the very least, the absurdity of privatization policies. With ample reserves of oil, the extraction of which, though, was said to be technically difficult, this area saw investment increase from $2 billion, 905 million to $4 billion 871 million pesos between 2004 and 2007, practically a 70% increase. These dates coincide with the contracting of the companies Schlumberger and Haliburton for the perforation of 300 oil wells. However, production over this period only went from the equivalent of 25 billion, 223 million barrels of crude oil a day to 26 billion, 625 million barrels, an increase of 6%. In sum, Burgos and Chicontepec turned out to be great business for the contractors but a terrible one for the nation.

In 2007, the Norwegian company PetroMena, owner of deep-water perforation platforms, rented three platforms for five years: the largest, for three thousand meters deep, to Petrobras America Inc. for $750 million dollars. The medium-capacity platform, for 2,500 meters of depth, was rented to Petrobras Brasil for $645 million dollars. The lowest capacity platform, for two thousand meters of depth, went to Pemex at a cost of $940 million dollars. In other words, Pemex rented the smallest platform for $300 million dollars more.

[…] Following such a litany of fraudulent acts, it becomes clear that what lies behind the current right-wing privatization mania are the ambitions of the same group that has been doing private business behind the shield of public power, at the cost of our national heritage, for years. Over and above any technical, financial or administrative considerations, the intention to privatize Pemex is based on the interest of rapacious minorities and corrupt officials who intend to stay mounted astride the oil business.

In synthesis, it is an undeniable fact that during the period of neo-conservative sacking, the powers that be have attempted to destroy the nation’s oil industry. Over this time, Pemex has suffered from more interventionism and point-blank sacking than any other company in the world. Nevertheless, it continues to be indispensable to defend Pemex against the current onslaught that seeks to destroy it for good, for upon the salvation of the oil industry depends, to a great extent, the destiny of the country and our people.