Mexico: more Pemex contract scandals exposed

Petróleos Mexicanos (Pemex), Mexico's giant state-owned oil monopoly, signed contracts worth $149 billion with outside companies from 2003 to 2012, according to a Jan. 23 investigative report by Reuters wire service; about 8% of the contracts were cited by a congressional watchdog, the Chamber of Deputies' Federal Audit Office (ASF), as having irregularities "ranging from overcharging for shoddy work to outright fraud," Reuters wrote. The problems involved more than 100 contracts with a total value of $11.7 billion.

Reuters' revelations appeared as Mexican president Enrique Peña Nieto was pushing ahead with an "energy reform" program to open up the country's petroleum industry to still more contracts with private firms. Praised by the US government and media, the program is unpopular with many Mexicans, who see it as a form of disguised privatization. Two major scandals implicating Pemex contractors came to light last year, one involving Oceanografía SA de CV and the US banking corporation Citigroup Inc., the other involving the California-based technology company Hewlett-Packard (HP).

Pemex officials rarely act to correct contract problems, according to Reuters. From 2008 to 2012 the ASF sent Pemex 274 recommendations to take action on the irregularities. Pemex's response so far has been to suspend a few employees in just three of the cases; the rest of the recommendations were dismissed or are still awaiting action. The government plans to establish a new independent auditing office for the enterprise to resolve the problem, but past performance by Pemex auditors leads to skepticism. One example was the case of sales to Brazilian chemical maker Unigel SA. From to 2009 to 2011 Pemex's petrochemicals subsidiary sold the Brazilian company a chemical at an unexplained discount that cost the Mexican enterprise $24.2 million. Pemex internal auditors flagged the problem, but the head auditor advised his colleagues to "work with the director of Pemex Petrochemicals to attend to and answer [our] recommendations, with the aim of avoiding them becoming definitive issues." The Pemex officials who approved the deal weren't disciplined; one now works for Unigel.

"Pemex's taxes and dividends finance about 30 percent of the federal budget," Reuters noted. "Contract abuse at the oil giant eats into the government's ability to fund services from healthcare to road building." (Business Insider, Jan. 23, from Reuters)

Meanwhile, Pemex and the overall Mexican economy are being hurt by plunging oil prices on international markets. As of Jan. 23 Pemex's oil was selling at $38.03 a barrel, its lowest price since June 2009. (La Jornada, Jan. 24). The International Monetary Fund (IMF) projects a growth rate of 3.2% for Mexico this year and 3.5% for 2016, a little below its projections for the world as a whole—3.5% in 2015 and 3.7% in 2016. (Forbes México, Jan. 20)

From Weekly News Update on the Americas, January 25.