PEMEX OOZES CORRUPTION

by Diego Cevallos

(IPS) MEXICO CITY -- Funds belonging to the Mexican state oil monopoly, Pemex, have paid in recent years for liposuction treatment for the wife of the company's chief executive, a presidential candidate's campaign, contracts with firms facing legal action, and the whims of trade union leaders who are not required to account for their expenses.

"Pemex is a can of worms. If you do something right, they come after you; if you shut up about some irregularity, they reward you; and if you take part in the corruption, you profit," a Pemex worker told IPS.

"I'm not saying everything is like that -- there are also honest people," added the worker, whose name is withheld for his safety.

The employee said that after he replaced several worn-out parts of a gas valve, a group of internal auditors criticized his work, saying they had found "too many foreign parts," and ordered him to put the originals back in place.

He said that when his boss protested, he was accused of a bias in favor of a private supplier and an investigation against him was launched.

The 70-year-old Pemex, the biggest company in Latin America, which employs 154,761 people, 125,523 of whom belong to the powerful oil workers union, is facing severe financial difficulties and is in dire need of upgrading its technology infrastructure. Moreover, Mexico's proven oil reserves are expected to run out in nine years.

Billions of dollars are lost to corruption which, according to observers, is deeply rooted in an opaque administration choked with red tape, and in political and economic vested interests.

In April, the conservative government of Felipe Calderon proposed reforms of the company, which would include the creation of an audit committee in charge of ensuring transparency, and would give Pemex greater freedom with respect to making decisions on managing its budget, making purchases, reinvesting earnings in production and exploration and contracting out to private companies.

However, the leftwing opposition parties are fighting the reforms, which they consider privatization in disguise.

According to a prominent Mexican nongovernmental organization, Fundar -- Centro de Analisis e Investigacion (Center for Analysis and Research), the government's proposed reforms would "encourage opacity and corruption."

"The proposal paves the way for possibilities for associations with private parties in a wide range of activities in the industry, without the parallel creation of precise mechanisms to guarantee transparency and accountability," while giving the executive branch "excessive discretionality in running Pemex," says Fundar, which is dedicated to promoting citizen participation and the rule of law.

Legislators have agreed to hold a wide-ranging debate from May 13 to Jul. 22, on overhauling Pemex, a symbol of nationalism and national sovereignty in Mexico.

But how much of a role does corruption play in Pemex's current crisis? No one can say with any certainty.

Documents from the Auditoria Superior de la Federacion (Federal Audit Office), which were seen by IPS, show that in 2006 alone -- the last year for which information is available -- $157 million dollars detected in expenses in exploration and the payment of services that had not been duly approved and explained, and which have not yet been clarified.

Lawmakers from the opposition Progressive Broad Front, an alliance of leftwing parties, are calling for the creation of a "truth commission" to carry out an in-depth investigation of causes of corruption and specific cases in Pemex before any reform can be approved.

There is a continuing perception of opacity, corruption and inefficiency in PEMEX, a company that is the booty of politicians and contractors alike, said oil analyst David Shields, who is based in Mexico City.

It is a secret society that operates far from public scrutiny, and which generates enormous quantities of money that is distributed at the discretion of the political system, he added.

Political scientist Aroldo Romero said that in Pemex, any financial movement, contract or purchase, even of small tools, is fraught with red tape, with the final decision almost always lying with the Finance Ministry.

"Many bureaucratic steps must be taken, and at any number of them, there are people who have learned to take economic advantage of the situation," Romero told IPS.

The draft law submitted by the Calderon administration would incorporate independent experts without conflicts of interest on Pemex's board, which is currently made up of representatives of the government and the oil workers union.

The government argues that the reforms, which oil industry experts say must be discussed urgently due to the country's rapidly diminishing reserves and the growing imports of fuel -- 40 percent of domestic consumption is covered by imports -- are aimed at giving the company greater autonomy to sign contracts with foreign firms better equipped to carry out deep-water drilling and exploration.

But Fundar says the initiative actually runs counter to that stated purpose, because "the executive branch would be in charge of appointing the four new members to the Pemex board of administrators, as well as a commissioner, under the apparent premise that the president is ultimately responsible for adequate oversight."

Furthermore, "the board would be presided over by the energy minister, who forms part of the executive branch," adds Fundar.

The government is not proposing, however, a modification of the constitution, which establishes that the country's oil belongs to all Mexicans, and prohibits direct private investment in Pemex.

What Calderon is seeking is to modify legislation so that the oil monopoly would be able to establish flexible contracts with private firms, which would receive payments based on their performance, but not with revenues obtained from crude produced in Mexico.

The proposal would allow local and foreign private firms to take part in refining, transport, storage and distribution of crude and its by-products through a permit system.

But the left is opposed to the proposed reforms, seeing them as an attempt at privatization, and arguing that they would lead to even greater corruption.

In addition, the leftwing opposition sees as a bad sign the fact that Interior Minister Juan Camilo Mourino, accused of irregularities in the oil industry, remains in the cabinet.

Between 2000 and 2004, Mourino signed seven contracts with Pemex for a total value of four million dollars as the representative of his family's transport and fuel companies, while he was a member of Congress, chairman of the energy commission in the lower house, and later an adviser to the energy ministry.

Investigative reports by journalists and denunciations by politicians also indicate that after he was appointed to the cabinet, Mourino named people linked to his family's companies to key posts.

The investigation into the case continues, but the minister has not been removed.

Luis Rubio, president of the non-governmental Centro de Investigacion para el Desarrollo (Center for Research on Development), said Calderon's proposed reforms have positive aspects like freeing Pemex from "the system of controls by which laws governing public works and public employees guarantee that everything is always paralysed, without curbing corruption."

In July 2007, Pemex director Raul Munoz was fined $80 million and banned from holding public office for 10 years, for the misuse of funds and the illegal transfer of more than $170 million to the oil workers union.

Munoz also used $12,500 in Pemex funds to pay for two liposuction surgeries for his wife.

There are abundant books and investigative reports showing that trade union leaders, used occasionally as allies by recent governments, obtain special funds that go towards things like building vacation homes or buying first-class airplane tickets.

Adrian Lajous stepped down as Pemex director in 1999 after publicly disagreeing with the government of then president Ernesto Zedillo (1994-2000) over the tax system under which most of the company's earnings go to the state.

Lajous, who frequently clashed with the oil workers union, was succeeded by Rogelio Montemayor, a former Institutional Revolutionary Party (PRI) senator and governor.

Montemayor is facing ongoing legal action, accused of illegally transferring more than $140 million to the Pemex union -- money that ended up in the PRI coffers to help finance the election campaign of the party's candidate, Francisco Labastida, who was defeated by Vicente Fox (2000-2006).

The oil company's reputation of corruption is so deeply rooted that in late 2007, a group of con artists had no problem selling around 200 people documents that supposedly guaranteed that they would be put on the company's payroll.

One of the victims of the scam, who paid $6,000 for the document, told IPS that "with what you see and hear about Pemex," the sale of spots on the payroll didn't sound too far-fetched.

In October 2007, at least 21 workers were killed when the oil platform on which they were working in the Gulf of Mexico collided with an undersea oil well. The workers died when their lifeboats broke up in the storm that was raging as they fled the platform. In the face of questions about the seaworthiness of the boats, suspicions arose that they had been acquired in irregular conditions.

In September, Paradigm B.V., a provider of "enterprise software solutions" to the oil and natural gas industry, paid a one million dollar penalty for making "improper payments" to officials in China, Indonesia, Kazakhstan, Mexico and Nigeria.

In Mexico, the company, which is headquartered in the Netherlands but has its principal place of business in the United States, had bribed a Pemex official to obtain contracts in 2004 and 2005.

And in March 2007, an independent investigation revealed that Pemex had contracted, for drilling and maintenance work, the companies Ambar Mexicana and Global Drilling Fluids de Mexico, whose shareholders had a criminal record of forging documents and had been accused of tax fraud, and one of whom had even been arrested.

Despite their dubious background, Pemex granted the two companies contracts worth around $170 million during the Fox administration.