Pemex Comments Get Mexico All Fired Up

Recent comments by Alan Greenspan are taking aim at a sacred cow here in Mexico Pemex, the state-run oil company. Greenspan, the former head of the U.S. Federal Reserve, has suggested that Mexico change its constitution to allow foreign investment in Pemex.

Greenspan's recommendation came during a speech he gave via videoconference to attendees of ExpoManagement 2007 in Madrid. Speaking of Pemex's need to increase its oil reserves, Greenspan said that Pemex may not have the capital needed to open new oil fields in the Gulf of Mexico. The solution, he said, is to solicit foreign investment to enable it.

Pemex's largest and most productive oil field, located in the Gulf of Mexico off the Yucatán Peninsula, has been in operation 27 years. It is now in a stage of "natural decline," according to Pemex, in which more advanced measures are needed to extract oil and gas.

Mexican newspapers and political figures retorted immediately, saying that Greenspan's solution is not the answer. The oil industry in Mexico has been state-owned since 1938, and changing its ownership is not taken lightly.

One solution, proposed by an ex-minister of Hacienda (Mexico's version of the Internal Revenue Service) is to reform taxes in Mexico. Pemex revenues account for a large chunk of Mexico's federal budget-35% to 40% according to some sources, and, according to Pemex itself, as much as 51% in 2005. More tax money from other sources, he contends, would enable Pemex to keep more of its earnings and finance its own exploration.

With the current high price of oil, Mexico's dependence on its oil revenues, and the remaining reserves said to be sitting in the Gulf of Mexico, this may have the beginnings of an oil-based political telenovela. Stay tuned to this channel for upcoming episodes.

Best Regards,

Suzan Haskins
Editor, Mexico Insider
International Living

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