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National Treasure

Author: David G. Victor, Adjunct Senior Fellow for Science and Technology
April 17, 2008
Newsweek

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What to do about Mexico’s oil company, Pemex, may seem like a parochial issue of interest only to Mexicans and a few oil industry executives. But the matter should be of concern to anybody who is wondering when oil will come down off its near-record highs.

Pemex generates two fifths of the Mexican government’s income and is a lucrative employer, but it is ailing from neglect. For years the government has milked Pemex of cash without giving it the wherewithal to invest in and develop new sources of oil. When President Felipe Calderon proposed last week to reform Pemex and encourage more private investment in oil exploration and refining, his leftist opponents shut down the country’s legislature in protest.  Pemex, they claimed, is a cherished national treasure that must not be pushed into private hands.

Mexico is hardly the only country that treats its state oil companies as ATMs for governments, unions, cronies and others who siphon the rich benefits for themselves. A large fraction of the world’s oil patch is struggling with the problem that bedevils Calderon: how to make state-owned oil companies (which control about three quarters of the world’s oil reserves) more effective at finding and producing oil. Veneuzuela’s oil output is flagging.  Russia’s state-owned gas company, Gazprom, is on the edge of a steep decline in production. And in different ways many of the world’s state-owned oil companies are are struggling to keep pace with rising demand. Simply privatizing them is politically difficult, and thus most of the world’s oil-rich governments are struggling to find ways to make state enterprises perform better.

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