The energy “reform” scam in Mexico

September 9, 2014

Multinational energy companies and Mexican capitalists alike are celebrating a new privatization law--but workers will pay the price, reports Héctor A. Rivera.

IN MID-August, Mexico's Senate approved several amendments to the country's Constitution that opened the door to the privatization of Mexico's vast energy sector.

The U.S. business and political elite has been pressuring Mexico for energy privatization for years. Building on efforts by Mexico's rulers for decades, President Enrique Peña Nieto and ruling Institutional Revolutionary Party (PRI) prepared the way for the "reform" with two years of attacks on teachers, social movements and unions.

The new law represents a nail in the coffin for one of the most important social gains of the Mexican Revolution of 1910-17--a constitution that enshrined state ownership of mineral rights. This is a complete surrender of Mexico's energy sovereignty, secured in 1938, when President Lázaro Cárdenas nationalized the oil industry.

The privatization will give way to a speculative frenzy that will only benefit the U.S. government's geostrategic interests, while lining the pockets of global energy corporations and Mexican capitalists alike. Meanwhile, workers will pay the price--both the country's poor and working class as a whole when the energy sector is increasingly opened up to international and domestic private capital, and workers at currently state-run companies.

A Pemex oil platform
A Pemex oil platform

These fears were the backdrop to last fall's militant strike movement by Mexico teachers. Over a period of 20 years, dozens of unions have been smashed and their members' jobs liquidated due to privatization schemes--including some 40,000 workers in the Mexican Electrical Workers Union (SME) who lost a fight to save the public electrical utility in Mexico City.

THE MOST significant change under the new law is the opening up of Mexico's oil industry to private investment. Up until now, the state-owned petroleum company, Petróleos Mexicanos--Pemex for short--was the only company that could explore and produce petroleum on Mexican soil. Pemex is Latin America's second-largest company, with assets worth more than $400 billion. It employs more than 130,000 workers, and its revenues fund 40 percent of Mexico's federal budget.

With the new reform, Pemex will no longer control the exploration and production of petroleum, and within the Mexican market, it will have to compete with international energy companies. Plus, Mexico's oil workers union, the Sindicato de Trabajadores de la República Mexicana (STPRM), will be removed from the Pemex board.

Pemex won't be privatized outright--that is, it won't be taken over by new private owners. Instead, it will operate as a so-called "productive state enterprise." However, this new status allows it to form an indeterminate number of subsidiaries--subsidiaries that can go bankrupt--which leaves the door wide open for corrupt officials to sell off subsidiaries one by one.

There will be a two-year transition period to implement the reform, and over the following 10 years, Pemex will have exclusive rights to over 83 percent of oil-producing fields and 21 percent of prospective oil reserves. The remaining fields and potential reserves promise significant returns for corporations, and the Mexican government has already moved into the contract phase of energy reform, a month earlier than expected.

The first round of bids and contracts was announced on August 13, just a few days after the Senate approved the privatization scheme. Through public-private contracts, the 10 projects Pemex has announced are valued at more than $144 billion. The next round, which will go into effect next year or even earlier, will offer 11 new contracts in the Gulf state of Veracruz and the border state of Tamaulipas.

The opening up of the electricity sector will follow a similar model. The national electricity company, the Federal Electricity Commission (CFE), is Mexico's second most powerful state-owned company after Pemex. It has a net income of $682 billion and employs over 80,000 workers.

With the new reforms, the state will maintain control of the national electricity grid and still be in charge of transmission and distribution to consumers. However, the CFE, like Pemex, will become a "productive state enterprise" that will compete with private energy companies to sell electricity to the national grid.

Under the new rules outlined in the reform, the private sector will be able to produce and sell electricity. The government will also be allowed to hire private contractors to expand and maintain the nation's transmission and distribution networks--previously CFE responsibilities.

This will make the CFE even more reliant on American energy companies for its supply of natural gas, which is used to produce most of the country's electricity. This will be a boon for American producers, which are already expanding their infrastructure in Mexico, including the construction of two gas pipelines from the U.S.

As for renewable energy, the new reforms nod in the direction of wind and solar, but these are merely symbolic measures, since the law includes hydroelectric power as well as nuclear power under its "renewable energy" rubric. In Mexico, hydroelectric projects have long a record of causing dispossession and displacement of local populations--and current trends point to an increase in mega-dam-building projects throughout the country.

ONE IMMEDIATE consequence of the energy reform has been the growth of hydraulic fracturing--or fracking--along the U.S.-Mexico border. Up until 2008, Mexico only had 25 fracking wells, but after legislation passed last December, Mexico clearly intends to catch up to the U.S. According to the U.S. Energy Information Administration (EIA), Mexico contains the sixth-largest reserves of shale gas in the world. According to the EIA, the Eagle Ford Shale of South Texas runs under the border and into Mexican territory.

In the northern state of Chihuahua, the federal government has already allocated more than $2 billion to build five gas pipelines connecting the Mexican border city of Ojinaga with Torreón in the central Laguna region. The plan is to extend these pipelines through indigenous territory in the Sierra Tarahumara and across the country, to the state of Sinaloa on Mexico's West Coast. The governor of Chihuahua, César Duarte Jáquez, is an enthusiastic backer of the project and sees his state as the backbone of a national network of natural gas pipelines.

Aware of the U.S. experience with this ecologically dangerous form of energy extraction, a broad coalition of environmental groups, activists, academics, farmers and NGOs have formed the Mexican Alliance Against Fracking and are spearheading efforts to inform local populations about its negative social and environmental impacts.

Furthermore, activists warn that Mexico's powerful organized crime cartels can become involved in these operations, since already corrupt environmental agencies in the region will do little to regulate pollution from wastewater ponds.

A recent acid spill at a mine in the northern state of Sonora has contaminated two rivers and left thousands without water. Thus far, however, the government has failed to force the Grupo Mexico owners to close the mine. If a national company like Grupo Mexico can get away with ecocide, activists doubt the government will be able to hold multinational corporations accountable if they cause a similar disaster.

Giant companies like ExxonMobil, Chevron, British Petroleum and Shell have been responsible for a host of social and environmental catastrophes. In light of Mexico's energy reforms, the Observatory on Debt in Globalization research center warns that human rights violations, land seizures, persecution of environmental activists and criminalization of social movements are but a few of the practices these companies will resort to in order to make a profit.

Thus, besides losing its energy sovereignty, Mexico also stands to face environmental destruction from unaccountable multinationals. The destruction of the Niger River delta in Africa, the BP oil spill in the Gulf of Mexico and the decimation of indigenous populations in the Ecuadorian Amazon represent a devastating track record.

But besides opening up Mexico's energy sector to privatization, this wave of neoliberal reforms is also intended to further integrate Mexico's energy resources with U.S. imperial interests. In 2012 for example, Republican Indiana Sen. Richard Lugar held a meeting at the U.S. Embassy in Mexico City with the transition team for the incoming Peña Nieto administration, industry representatives and leading politicians of Mexico's three major political parties.

At the meeting, Lugar proposed a Trans-Boundary Agreement (TBA) between the United States and Mexico. The new treaty would regulate joint exploration of gas and oil reserves in the Gulf of Mexico along Mexico-U.S. maritime borders.

But according a Senate Foreign Relations Committee report, the TBA would act as a "camel's nose under the tent" that would open up Mexico's oil industry to privatization. Lugar argued that signing the TBA and Mexico's energy reforms, would determine in what measure Mexico would be part of the future energy security of the United States and North America.

THUS, THE U.S. is putting a lot of pressure on Mexican politicians and business leaders to go along with privatization. But this elite has its own interests in the energy reforms. The Mexican political establishment has been a willing and able partner all along.

Together with the other structural reforms that the Peña Nieto administration has pushed through Mexico's Congress and the Senate, the energy reform is part of a neoliberal offensive that the Mexican ruling class has pursued aggressively for decades--most famously, with massive currency devaluations in the 1980s and agreeing to the North American Free Trade Agreement (NAFTA) in 1994.

The majority of Mexico's vicious and class-conscious rulers are firmly committed to the pro-free market reforms of neoliberalism, and have been for many years. While there was once a large section of the ruling class committed to economic nationalism--and thus supportive of a nationalized oil and energy sector--there has been hardly a peep from these quarters as the Peña Nieto administration pushed for the reforms.

The best-known critic of privatization is Andrés Manuel López Obrador, the populist political leader of the Movement for National Regeneration (MORENA), who had the presidency stolen from him by vote fraud in 2006. But both he and the Party of the Democratic Revolution (PRD) he once led have also made their compromises with neoliberalism. Besides a signature-gathering campaign for a petition opposing the energy reform, MORENA and the PRD failed to put forward an alternative that can challenge the neoliberal onslaught now underway.

For now, many Mexicans will wait to see if these reforms jump-start the economy as the president has promised, though most aren't holding their breath. Pemex's privatization will inevitably hit government spending negatively. Thus far, the Peña Nieto administration has successfully maneuvered around protests, and the energy reform's passage by the Senate represents a significant victory for his neoliberal agenda--and a corresponding defeat for the left and social movements arrayed against it.

The battle to reverse the tide will be difficult, but widespread dissatisfaction about unemployment, corruption and insecurity means Peña Nieto could soon face significant struggles ahead--now with the privatization schemes as yet another grievance--as class polarization grows in free-market Mexico.

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