A slew of reasons. But one stands out, and it’s not the price of oil.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
One of the biggest surprises awaiting seasoned travelers to Mexico these days is the daily sight of privately branded gasoline stations. For the past eight decades Mexican drivers had only one choice of filling station: state-owned oil behemoth Petróleos de Mexico (A.K.A. Pemex). Now they have six.
Of the first five private companies to open operations in the sector, three were Mexican (Hidrosina, La Gas, and Oxxo Gas) and two were US-based (Gulf and Petro-7). From 2018, foreign operators will even be allowed to sell imported gasoline from the gas stations they operate. It will be the first time since Mexico’s oil industry was nationalized, in 1938, that non-Mexican gasoline will be legally sold from non-Mexican gas stations.
This massive increase in competition is yet another big blow for an already debilitated Pemex and its myriad partners, for whom the retail business is (or at least was) a vital source of funds and profits, generating roughly 730 billion pesos ($36 billion) of revenues a year. And after years of record losses, debt-burdened Pemex needs every peso it can get its hands on.
But rather than getting better, things just keep getting worse.
Pemex reported that in July its average crude oil production slipped below the psychological barrier of 2.0 million barrels per day, the lowest daily level registered since 1980. It’s a far cry from the glory days of the early 2000s when the company was pumping an average of 3.4 million barrels per day.
It’s not just Pemex’s crude production that’s falling. The total production of petroleum products in July was 834,000 barrels per day, 157,000 barrels per day less than in June. That’s a monthly drop of 19%. Compared to July 2016, Pemex produced 246,000 barrels per day less — a year-over-year drop of 29%.
How did things get this bad, this fast?
There are many reasons, including bad management, lack of vision, severe budget cuts, shrinking oil reserves, sinking oil prices, lack of investment resulting in poor or obsolete infrastructure, negligence and the huge tax burdens the government imposed on it in the years preceding Mexico’s oil reforms, while lavishing foreign companies with massive fiscal incentives to invest in Mexican oil fields. But there’s an even bigger reason: corruption.
Simple, plain, white-collar corruption.
There’s no better example of this than the accusations leveled against Pemex’s former CEO, Emilio Ricardo Lozoya Austin (2012-2016). Lozoya, formerly a board member of the scandal-tarnished Mexican subsidiary of the Spanish construction firm OHL and one-time senior election campaign advisor to Mexico’s current president, Enrique Peña Nieto, is accused by senior executives of the Brazilian construction firm Odebrecht of receiving “tips” worth some $10 million in exchange for his support in obtaining public work contracts.
The money allegedly passed through shell companies in the British Virgin Islands before coming to rest in private bank accounts belonging to Lozoya in Switzerland, Liechtenstein, and Monaco. Lozoya is one of countless public figures in a dozen Latin American and African countries, including Venezuela, Colombia, Argentina, Peru, Angola and Mozambique, to be accused of having his pockets lined by Brazil’s largest construction company.
The Odebrecht case could end up costing the Brazilian firm over $4 billion in fines — money it claims it does not have. The resulting corruption probe has imprisoned Brazil’s most prominent politicians and business owners. It has also done massive damage to Brazil’s state-owned oil behemoth Petrobras. Even Brazil’s former president, Luiz Inacio Lula da Silva, could face prison time for allegedly accepting Odebrecht’s paying for his family’s vacation home (while Brazil’s current bribe-drenched President is protected by the Senate).
In Mexico, the Attorney General, Raul Cervantes Andrade, is dragging his feet — perhaps no surprise, given a) he is a very close friend of President Peña Nieto, who is in turn a very close friend of Lozoya’s; and b) he worked alongside Lozoya on Peña Nieto’s presidential campaign. Within weeks of Nieto’s victory in 2012, Andrade was given the top job in Mexico’s justice system and Lozoya was handed control of Pemex, just as Nieto was about to begin denationalizing Mexico’s oil sector.
During his three-and-a-half years at the helm, Lozoya oversaw a dramatic deterioration in Pemex’s already poor financial performance. By 2015 the group’s total sales had plummeted by 21% and its operating losses had soared to an eight-decade high of $38.5 billion.
Between 2012 and 2016 the ranks of senior management and administrators on the company’s payroll tripled. Despite Pemex’s growing losses they awarded themselves generous salary rises and lucrative perks, including three executive planes and a helicopter, and 911 company cars and SUVs.
The planes and helicopter, personally requested by Lozoya himself, were supposed to be deployed in the fight against the mass theft of oil by armies of amateur opportunists who live close to the major pipelines that crisscross the country as well as some of Mexico’s most ruthless and organized drug gangs; instead, as the Mexican weekly Proceso reported this week, they were used to shuttle Lozoya and his fellow executives to and from luxury resorts in Mexico and the United States, at public expense. There’s no public record of who accompanied Lozoya on those jaunts.
Now, four years later, systemic oil theft is estimated to be costing Pemex 20,000 barrels of gasoline daily, with a market value of around $4 million. That’s about $1.4 billion a year. It’s the second most profitable source of funds for Mexico’s criminal gangs, behind the trafficking of drugs, and it’s also costing lives, as clashes rage between soldiers and fuel thieves.
As for Lozoya, it’s highly unlikely that anything untoward will happen to him. Just like the burgeoning ranks of state governors, current or former, that are facing prosecution for fraud or corruption, he will no doubt be protected by Mexico’s highly politicized judicial system. The state-owned oil company he left behind in tatters, in early 2016, may now have different, and probably better management, but the problems it faces, including rampant corruption, are now so deep-seated that it’s hard to imagine anything stemming its decline. By Don Quijones.
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Interesting read. We come from many cultures with different values, but we all share the concept of corruption. And are victimized by it, individually and collectively.
The same corruption that has historically devastated Mexican industry is rapidly taking hold in the American electoral system. Except we call it lobbying. It’s a shame that we don’t have the ability to fight it.
Not just in the electoral system. The whole legislative process is almost totally corrupt at the federal and state level. Financial regulation is done by the biggest thieves as is control of health care costs. Companies are increasingly run for the benefit of their executives or private equity. Law enforcement concentrates on kids getting buzzed and parking/speeding.
I totally agree with you.
The most significant aspect of the Pemex debacle is the consequence of a state-owned industry: eventually, it will be destroyed by corruption and more efficient, smaller firms will take market share. TAKE NOTE VAMPIRE SQUID. Since our financial regulatory system is so coruppted it can’t even jail outright thieves, a new capital distribution system has emerged and will force GS and Morgan to excrete the rotten turds that have have ruined their organizations and the industry. Hey, Blankfein, F’you!! LOL
“It’s a shame that we don’t have the ability to fight it.”
You have the ability.
You don’t have the will, and wont, until the soup kitchen ques return to America. (Then you may no longer have the ability.)
As the average fat American, is still happy, spending credit he can never repay, to buy junk from china, he dosent need.
As the US government becomes ever larger and more paternalistic, aren’t Americans just imitating what they see from big brother in Washington? Spend more than you make, using credit you’ll never be able to repay! 20 trillion and counting!
“As the US government becomes ever larger and more paternalistic, aren’t Americans just imitating what they see from big brother in Washington?”
I fear that the DC admin will not be as paternalistic as in the past for much longer.
Apart from that yes Americans are foolishly doing what big brother does.
The American education system ,stopped teaching the average American, to think for themselves, long ago, which gives
Monkey see, Monkey do, Monkey’s all starve together.
Pemex corruption is like a river with many distributaries- just as corrupt, if not more, as the main source.
One being the drug cartels that have inflicted fear and death upon the citizenry, to wit: Pemex at some point, accounted for about 30% of Mexico’s federal budget. It’s no coincidence that drug cartels have risen up concurrent with Pemex’s demise. Corruption begets corruption begets corruption.
Then there is the fact that oil can only be extracted once. Mexico was blessed with one awesome field (Cantarell) that can not continue to yield massive amounts of oil for ever (there is only so much there). The money made from Cantarell was mostly not reinvested in the oil industry but instead mostly went to general revenue. It is possible (though unlikely) that another super field is out there – so maybe they could have found more, but eventually it is a losing game. Mexico built an economy dependent on oil revenues – instead of putting aside the windfall for another day (see Norway). Eventually (maybe now) the ride ends, the decline will not be pleasant.
Cantarell is located only 100′ below the the Gulf of Mexico.
There are plenty of places to look for oil. The government was extremely short sighted in not investing any money in oil exploration.
Thievery on this level should be a crime against humanity. Stripping the people of their patrimony is not a low level crime, it’s a form of sedition, and should be punished as such. They should stop calling it moral hazard and start calling it treason.
Petunia, as Ben Franklin observed, treason is a crime invented by winners to punish losers. Just look at Congress if you have a strong stomach. As long as John Q. Public and his wife will accept that and even vote to reelect the thieves, that’s what the Public family are going to get.
I am a strong believer in the Bill of Rights and yet people today seem only too willing to allow the US Constitution to be dismantled. What the hell, at 77 my throwing arm is not strong enough to throw Molotov Cocktails. Maybe with Tommy John surgery……
You need to be thinking along the lines of mechanical advantage. Something to increase your 77 year old arm’s ability to serve a cocktail at distance. :)
Regards
“it’s a form of sedition”
????????
“”
sedition
sɪˈdɪʃ(ə)n/
noun
noun: sedition; plural noun: seditions
conduct or speech inciting people to rebel against the authority of a state or monarch.
synonyms: incitement (to riot/rebellion), agitation, rabble-rousing, fomentation (of discontent), troublemaking, provocation, inflaming; More “”
Not what you meant I think.
If you are a Member of the Government, it could be treasonous. Otherwise it is simply Corruption and Theft, on a massive scale.
Acts of Corruption and Theft, can become so large, with such far reaching effects, that they become acts, falling into the class of “crimes against humanity” when considering sentencing.
These frauds are not conducted by a single individual, they are organizational frauds conducted by people with the power to cover their tracks and avoid prosecution. My comment was intentionally not pointed at Mexico, because it applies to us as well.
“These frauds are not conducted by a single individual, they are organizational frauds conducted by people with the power to cover their tracks and avoid prosecution.”
Yes.
However they are not acts of sedition.
They are not even insurrection, as to prove insurrection you would need to prove intent to overthrow, or at least usurp the powers of the state.
They are just good, old fashioned, organized, thieves, and bribe taking (so Corrupt) fraudsters.
d,
I don’t understand how you can’t see that diverting money that would benefit the citizens, especially in massive amounts and in a systematic way, is not intentionally usurping the power of the state. These are monies that would have directly benefited citizens, if not for the seditious behaviors of the parties involved. I think the level of corruption rises to the level of treason as well.
“I don’t understand how you can’t see that diverting money that would benefit the citizens, especially in massive amounts and in a systematic way, is not intentionally usurping the power of the state.”
I love a twisting woman.
Its not sedition. Your original claim.
It is not usurping, as the intent is not to completely take over the power of the state, simply to rob it blind in certain sectors.
They could take over the state. If they did that, they wouldn’t last very long, as the people would not accept their behavior, if they held the levers of power.
Unless you are somebody like Tito, Chiang, or Franco, none of whom themselves were that corrupt. Or leaders in a corrupt Police/Military state like Castro or Mao. Both of who turned out to be far worse than what they replaced.
Corrupt Dictators/Leaders dont last very long. Crony corrupt politicians and businessmen, do last for decades. Look no further than the US senate and house of representatives to confirm this.
The communist came up with “Enemy of the People” as a moniker for them, to put their crimes into the higher sentencing areas, and make their apprehension more urgent. As otherwise they are simply bribe giving and taking thieves, low in the social order, and not news worthy..
“Who could doubt the secret hid
Under Cheops’ pyramid
was that the contractor did*
Pharaoh out of several million…”
-Rudyard Kipling – The Ballad of Ways and Means.
Why is this article written like the collapse of oil companies are a BAD thing?
Frankly, it IS good that fossil fuel enterprises be removed for the good of humanity, if not for our ultimate survival.
Fossil fuel companies are never going to voluntarily disband and stop damaging the environment, and they will never go all out to invent new renewable technologies that will certainly cannibalizes their revenues. Oil money has brought incessant wars and helped fuel too many despotic regimes in the Middle East and countless terrorists as well.
So, we should all celebrate whenever these fossil fuel companies go out of business, whether its due to the price of oil, corruption or whatever reasons of convenience. Really.
If anything, we should pop the champaign for these oil Capitalists that are making the proverbial rope to hang themselves with.
Corruption is the highest sin on my list. It surely causes more premature deaths than all the serial killers combined. It’s at the heart of every failed nation. Good controls on corruption is why the standard of living in Australia is so high even though half the people here seem unable to carry out basic tasks.
“Good controls on corruption is why the standard of living in Australia ”
You cant be serious.
Did you learn nothing from the Stewart Commission.
Corruption in Australia. like may othe rthings, is controlled by, the police, unions, and politicians.
For their benefit.
There is plenty of it, and always has been, since the original “Rum Police”.
It just kept a lot quieter. Its quiet nepotistic. You pay if you are told to. And say nothing. You cant just buy a problem away, in Australia, if you have money and want to..
Juliar Gillard was a corrupt as they come, from unions, to govt, to out the door, or we put you where we put Pauline.
She was just as bent a Petersen (https://en.wikipedia.org/wiki/Joh_Bjelke-Petersen), but didn’t have the contacts he did, to stay in power, as long as he did.
Both NSW and VIC have endemic corruption in their police forces it goes with the organized drug dealing in both States. Even the FED’S cant break it up.
Corruption here all over the place. You just have to know how and where to look and most of it never gets discovered. If it does, nothing much happens at the top………
Victoria Police (VicPol) was interesting as there were certain cliques inside the organization that helped each other out and woe be to anyone that stepped on their toes. They would and could get away with almost anything.
I worked for them for a while back when I first moved to Melbourne. The stories I could tell you about police and policing.
For an interesting read take a look at :
http://www.abc.net.au/4corners/stories/s11694.htm
That was a little before my time and a in a different squad.
Corruption in business is a little different too, but practiced on a wide scale especially in the smaller oil and gas and mining companies where many of them are ‘Director Lifestyle Companies”‘ designed or nothing more than to line the pockets of the directors at the cost of the share(bag)holders.
Politics – just look at at the so called ‘consultants’ the state governments here hire…………….High paying jobs for “mates” that don’t do anything. Huge cost overruns for major projects with some construction workers pulling in over A$180,000 a year and getting paid if they show up to work drunk or on drugs.
And on and on.
Japan looks squeaky clean compared to some of the stuff that goes on here.
Thanh’s for the confirmation.
Some people just aren’t in touch with reality, or refuse to seek facts, they don’t like.
I find Melbourne thinks its New York II, its version of the five family’s war, seems to have cooled these days.
Sydney Seems to think its LA II. Or at least east LA II.
Queensland has improved a littl,e since it no longer has an annual state of emergency, but, the Police there still give warning shots in the back of the head it seems.
“Japan looks squeaky clean compared to some of the stuff that goes on here.”
Japan In my experience, has bigger problems with tax evasion, than it does “Pay money corruption”.
Although there are a huge quid pro quo issues, in some sectors.
You frequently cant pay off the boss. However dont expect any advancement a decent bonus, or raise, if you aren’t among the top buyers at Friday night drink’s, restaurants, and “Other Entertainments”.
As we know, they have “Their way” of doing thing’s. An dtehy work.
The Tokugawa Shogunate was “Bankrupt” for over 250 years yet worked.
Until some clown by the name of Perry turned up, and forced them and the country, to do things, it was not ready to do.
The reverberation’s from that, lead to Hiroshima.
Poor Mexico: its history is corruption.
No different now in the USA. Corruption all over the place.
Corruption from cities and states implementing ‘sanctuary’ policies and breaking federal law.
Police in the USA are corrupt as well with the increase in Civil Asset Forfeiture. Stealing money and assets from people.
Just a short step from there to other corruption such as using government agencies to target certain groups: Fast and Furious; the IRS and the Tea Party; NSA and unmasking.
Pass laws such as the Patriot Act and FACTA.
Hit the small guy and let the fat cats go.
The concept of asset seizure is not necessarily bad.
The way the proceeds are disbursed in the US, encourages Abuse.
Law enforcement agencies, cities and municipalities, should get none of the proceeds.
All the assets should be liquidated by the fed, for the National treasury.
Congress institutionalized corruption with a few simple acts.
1. Eliminate the Fairness Doctrine. See Ben Franklin and others regarding the necessity of a free and independent press that would tell truth to power.
2. Allow media concentration, for fewer echo chambers to maintain.
3. Encourage the destructive role of money in politics, through failure to act regarding Buckley, Citizens United et al. Yes I know those were Court decisions, but Congress has a duty to serve all of the citizenry, not just the ones who pay.
4. Add your own observations, and ask the following:
a. Cui Bono?
b. Who, Whom?
“A republic, if you can keep it.”
The real problem with the endemic corruption in Mexico is that when you drain too much money out of any system it can collapse. If that happens there is the potential that America may wind up with a failed state on its southern border. That will be a really big problem.
The impact of the collapsing Petrodollar was almost entirely on the Africa & Mid-East exporting nations – the worst impact on ground ZERO Saudi Arabia – who are today running on oil dregs only – the misfortune spread to Norway – Canada & now Mexico.
But was it Pemex spending on expensive offshore wells & other such luxuries that has caused the demise of Pemex ?
Or is it a case of reckless spending on luxury items that has caused their slippery slide to crisis ?
And all the while – oil reserves are drying up in every corner of the planet.
Of course it is not possible that the US is selling Mexican oil to the Mexicans – pretending that it is oil from foreign origins ?
It wouldn’t be the first time this old trick has been played.
Is thisis the case – we need to ask – to who’s benefit ?
Conspiracy Theory No 1:
a) It could be that Pemex is so in debt to the Western banking system that they had no option but to lay down.
b) It could be that a corrupt Mexican political arena is so in debt to the Western banking system that they also had to lay down.
As the saying goes – when you get into bed with the devil – eventually you have to front.
Mexico’s problem is not that there’s corruption, but that their whole society is based on corruption. “Honor” or simply, “doing the right thing” has no place in today’s Mexico, or in the minds & hearts of today’s Mexicans. Doesn’t matter where in the world Mexicans are, or what they are doing. Just lie, cheat, steal; if violence will help, well so what?
“Power corrupts and absolute power corrupts absolutely.”
I didn’t make that statement up. I’m simply repeating it because it is so true. Trouble is, if you eliminate all corruption (mission impossible!) you end up with no government. Government itself is by its nature corrupt. The money we use (or what passes for ‘money’ these days) isn’t even real. Nothing tangible backs it. If you attempted to pay off all the debt there would be no money remaining and there would still be unpaid debt, because all our money begins as credit which becomes debt once it is issued and spent. This is unsustainable, but it finances and enables all the corruption we have in government. Return to real, tangible money and you severely limit corruption. This will never happen, as corrupt government is too deeply entrenched and they will not allow the return of the iron discipline of sound, honest, tangible money. We the electorate are not blameless, as we have allowed ourselves to be bought off by corrupt politicians. We all want ‘free stuff’ from the government and none of us are willing to pay for it. We are a democracy and democracies self destruct when voters discover we/they can vote themselves ‘free stuff’ from the government. We are doomed, just like the Western Roman Empire was in the fourth and fifth centuries. Will our monetary/fiscal/economic/moral collapse be followed by a long dark age like that which followed the fall of the Roman Empire?
This is a worldwide problem, because this corruption is built into human DNA and there is no cure. To oppose corruption is a losing battle. There is no hope. Unless we can change human nature (lots of luck on that one!) our species, homo sapiens, will most likely self destruct and we may eventually become extinct. Unlike the fifth century, we now have the means to destroy life on this planet. Economic upheaval will bring trade wars, followed by shooting wars and probably winner take all total war using weapons of mass destruction. Mutually assured destruction will ultimately lead to mutual destruction. Because we are not only corrupt and evil, we are stupid. Our elected leaders are fools. We elect them or let them take over by force.
Worth remembering: A Rockefeller oil company sued Fred Koch so they could use his patented refining processes with impunity. They won the suit, too…because they bribed the judge. It took a long time, but Kochs finally prevailed, and thus began the hatred Kochs have for government.
Corruption bears fruit even generations after it happens
JD would have been perfectly at home in congress or on wall street today, very wealth with no respect for any law or man.
JD is an example of one of the failure point of capitalism which is monopoly.
JD would also have been right wright at home in today’s Russia or china, Both are Mafia states.
in his time criminals could not organize at the level he operated at, like they can today.