Pemex Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Pemex is a Mexican state-owned oil company that operates throughout Mexico. The company is so large that its revenues account for as much as one-third of the Mexican government’s entire revenue, and for about 7 percent of Mexico’s export earnings. The company is involved in exploration, production, refining, petrochemicals, and more. Pemex has estimated reserves of 15.5 billion barrels of oil equivalent.

In the early years of the Mexican oil industry, the Mexican engineer Ezekiel Ordóñez discovered an oil reserve in San Luis Potosí, Mexico, in 1901. In the same year, President Porfirio Díaz issued the Petroleum Act to boost oil activity, giving advantages to foreign investors and foreign companies. Later, with the fall of Porfirio Díaz, the revolutionary government of President Francisco I. Madero issued on June 3, 1912, a decree to establish a special tax stamp on the production of oil, and subsequently, he ordered a register of companies operating in the country. Three years later President Venustiano Carranza established the Petroleum Technical Commission. By 1917 the Constitution of Mexico had dictated national control of all the riches of the subsoil, and the Carranza government soon imposed a tax on land and oil contracts to exert control over the industry.

In 1920 there were 80 oil companies in Mexico producing and exporting; 17 of these companies received 90 percent of their capital from Anglo-Americans. The company Petroleos de Mexico, A. C., was founded later, in 1934, and was responsible for encouraging more domestic investment in the oil industry.

Other important events in the history of the Mexican oil industry include the establishment of a union of Petroleum Workers in Mexico in 1935. Just two years later, following a series of events that damaged the relationship between employees and employers, a strike broke out against foreign oil companies and paralyzed the country. The Conciliation and Arbitration Board ruled in favor of the workers, but oil companies sought protection before the Supreme Court of Justice. In 1938, President Lázaro Cárdenas sided with oil workers striking against foreign-owned oil companies for an increase in pay and social services. On March 18, citing the 27th article of the 1917 constitution, President Cárdenas embarked on the state’s expropriation of all oil resources and facilities, nationalizing the U.S. and Anglo-Dutch operating oil companies and creating Pemex.

In 1992 the Mexican government issued a new Organic Law of Petroleos Mexicanos (Pemex) and subsidiary bodies where the government set up basic guidelines to define the powers of Pemex as a decentralized body of the Federal Public Administration, and as a company responsible for leading the national oil production. This new law establishes the creation of a corporate body and four subsidiary bodies for Pemex and its future operations. These subsidiary bodies are Pemex Exploration and Production (PEP), Pemex Refining (PXR), Pemex Gas and Basic Petrochemical (PGPB), and Pemex Petrochemical (PPQ).

Despite its current $77 billion in revenue, Pemex pays high taxes to contribute to the federal budget. In recent years the company has only been able to meet its demands through massive borrowing, so that it owes a staggering $42.5 billion, including $24 billion in off-balance-sheet debt because the Mexican government treats the company as a major source of revenue. The state-run company pays out over 60 percent of its revenue in royalties and taxes, with those funds paying for about a third of the federal government’s budget.

In 2005, with record-breaking oil prices (due to the Iraq war, economic expansion of the United States and the People’s Republic of China) the company saw an unexpected excess of funds. This tendency continued in 2006 and 2007. However, the excess funds were used to pay salaries of bureaucrats and current government expenses, instead of being invested in projects for exploration and production. During President Vicente Fox’s administration, these funds amounted to about $70 billion, yet the administration said that there was not enough money to pay debts. To help capitalize the company, President Felipe Calderón then made clear at the beginning of his presidency that he would respect the constitutional mandate to keep Pemex in the government’s hands, but that he would try his best to open up the sector to private investment.

Bibliography:

José Antonio Almazán González, El debate constitucional sobre la reforma de Pemex: conclusiones y propuestas [The Debate on the Constitutional Reform of Pemex: Conclusions and Proposals] (Grupo Parlamentario de PRD, 2008);
Luis Pazos, Los dueños de PEMEX: del saqueo a la reforma [The Owners of PEMEX: The Pillaging of Reform] (Diana, 2008);
Pemex, www.pemex.com (cited March 2009);
Simone Pulver, “Importing Environmentalism: Explaining Petroleos Mexicanos’ Cooperative Climate Policy,” Studies in Comparative International Development (v.42/3–4, 2007).

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