On the Road to Pemex Reform

President Enrique Peña Nieto has mounted an assault against Mexico’s entrenched monopolies over the past two months. He first took on the teachers union, then the telecoms, explaining his aim was to “transform the country, not just to run it.” Where’s this going? As noted by the Financial Times, the reform offensive “could ultimately even shake up the long sacrosanct oil industry.”

Certainly Pemex, Mexico’s ailing state-owned oil giant, begs reform. The tragic January 31 explosion at Pemex headquarters in Mexico City, which killed 37 people, is just the most acute sign of the company’s creaky infrastructure. Oil output is down 25 percent since 2004.

Yet, as I argue in World Politics Review, the momentum behind reform faces a steep hurdle when it comes Pemex. Off the bat, two of Peña Nieto’s tricks appear unlikely to work.

First, the government advanced education reform by putting a face on the problem, literally. Although the arrest of Esther Gordillo, the all-powerful head of Mexico’s teacher’s union, came after Peña Nieto signed education reform into law, her surgically enhanced visage—clearly at odds with her paltry official salary—removed the major impediment to implementation, sparked international intrigue, and gave forward momentum to the reform agenda. But Pemex is faceless.

Second, Peña Nieto’s reform coalition appears to be fracturing when it comes to Pemex. At the recent PRI national convention, members voted overwhelmingly to change the party platform in order to appear open to the idea of privatizing Pemex. This suggests a base of support for Peña Nieto, who in January cooed about turning Pemex into something akin to the partly privatized Petrobras.

Evidently Peña Nieto’s energy minister, who’s also a member of the PRI, didn’t get the message; he recently ruled out just such a privatization. And Mexico’s leftist parties, which together proved crucial to passage of the education and telecom reforms, are dead-set against privatizing Pemex. Doing so would cost jobs, they insist.

So, if Peña Nieto is serious about modernizing Pemex, he may need to focus less on a political broad coalition for the time being. Instead, he can advance reforms by recasting the debate, from privatizing Pemex to expanding the company’s reach into new areas where Pemex has been slow to manifest its monopoly right: shale gas and deep offshore oil. Far from costing jobs, moving Pemex into these sectors—via partnerships with U.S. oil companies—will surely create them.