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The Energy Reform: A Re-appearance of the Virgin of Guadalupe?

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Mexican Cartel Op-Ed No. 4:

The Energy Reform: A Re-appearance of the Virgin of Guadalupe?

George W. Grayson

This series provides a retrospective look at the first year of Mexican President Enrique Peña Nieto’s Sexenio with comments on the prospects for 2014. These Op-Eds, numbered 1-7, are written by various SWJ El Centro fellows. Of note is the dynamic that we are witnessing between the criminal insurgent aspects of the conflict now raging in Mexico and the PRI administration’s focus on promoting the interests of the Mexican ruling class over the security and safety needs of the majority of its citizenry. RJB

Not unlike their counterparts in other nations, Mexican officials have a proclivity to announce the resolution of a problem once they amend the Constitution, enact legislation, and enter into accords with other countries.  Agustín Basave Benítez emphasized this tendency in his outstanding book Mexicanidad y exquizofreninia.  This essay will concentrate on the most vaunted changes in the fundamental law: the energy field.

The government of Enrique Peña Nieto, which claims to represent a “New PRI,” has deployed the artifice of a magic fix to garner favorable coverage from the international media.  The opening of the hydrocarbon and electricity sectors to private capital—has garnered superlatives from major American publications.

Editorial writers at the Washington Post rhapsodized that “Mr. Peña Nieto and his coalition can savor a historic breakthrough that positions Mexico to restore its place as a major oil producer, attract billions in investment and modernize its economy.  As Venezuela’s economy implodes and Brazil’s growth stalls, Mexico is becoming the Latin oil producer to watch—and a model of how democracy can serve a developing nation.”

Leaving aside the hyperbolic use of “democracy”—average Mexicans have no means to peacefully influence their elected representatives—the energy project may be the greatest event since the appearance of the Virgin of Guadalupe. Indeed, the PRI demonstrated its “Tammany-Hall” effectiveness in gaining the approval of a majority of states in just two days to modify the Constitution.

Although the proposed changes in this vital area are extremely encouraging, there are questions that must be addressed in a yet-to-be-passed dozen secondary laws, which implement constitutional changes. 

As the cliché goes, “the devil is in the details.” Most important among these are: the reform privileges gas and oil exploration and development over current economic activity in a venue, whether jungle, desert or coastal regions.  This priority is a recipe for conflicts with local residents engaged in modern ranching, growing beans, corn, and other staples on communal farms known as ejidos or pursuing commercial ventures.  To this point, the Secretary of Urban Development Carlos Ramírez Marín doesn’t appear to have a plan for responding to such contingencies.

Another challenge that lawmakers face is clarifying the differences among the five elements of contracts: (a) service, (b) profit sharing, (c) production sharing, (d) licenses for concessions, and (e) a mixture of the previous four approaches.    

In addition, the responsible regulatory bodies—the National Hydrocarbons Commission and the Energy Regulatory Commission—currently lack qualified professional staffs to oversee the proper implementation of this sweeping legislation. Corruption may also plague the actions of these agencies.

Decision-makers must also contend with organized crime. Los Zetas and the Gulf Cartel have tapped Pemex’s aging and limited pipeline structure—with the state monopoly suffering millions of dollars in losses from 2,167 thefts during the last three years. Will foreign firms build distribution lines when they run the risk of enduring thievery and/or facing extortion from an extremely vicious underworld?

The principal culprits are in Los Zetas, a sadistic cartel that operates out of resource-rich Tamaulipas state below the Rio Grande Valley.  These cutthroats have been acquiring from complicit Pemex managers and security forces such strong solvents as xylene and toluene, which is used in cooking Methamphetamine consumed in the U.S.  The largest thefts have taken place in installations of Pemex, the corruption-infused state oil firm, in Villahermosa, Ciudad del Carmen, Veracruz, Poza Rica, and Reynosa.  The energy reform may exacerbate this headache when the volume of chemicals increases as outside companies make direct investments.   

Last but not least is the opposition to capitalist ventures spearheaded by ex-presidential candidate Andrés Manuel López Obrador (AMLO) and his walk-through fire acolytes.  López Obrador, who after two setbacks, still has his eye on the presidency, is an undemocratic, messianic populist who abhors liberalizing his nation’s economy. 

He perceives himself as the savior of Mexico’s 40 million “have nots” and believes that his righteous ends justifies the use of whatever means are required.  He cut his political teeth in Tabasco, a major petroleum state, and mobilized his followers to intimidate Pemex employees, close down access to wells, block service roads and highways, and lead demonstrations that found his loyalists flocking into Mexico City’s historic zone. 

After his narrow loss for the presidency in 2006, López Obrador, leftist parties, left-wing labor unions, and debtors’ groups threw up a tent city that immobilized the downtown area of the capital for six weeks.

No doubt he is embolden by the unwillingness of both the Mexico City government and the Peña Nieto regime to crackdown on “La Coordinadora” (CNTE), a radical teachers’ union, which—in opposition to a constitutional reform of the education system—practiced hooliganism for months in 2013.  The CNTE has erected a camp in the Zócalo, run roughshod through the city periodically impeding access to the international airport, encircled the Bolsa stock exchange; and, on at least one occasion, forced the Chamber of Deputies to meet blocks away from the San Lázaro legislative palace.

The responsibility for preventing disruption and even sabotage in the capital lies with Mayor Miguel Ángel Mancera who was missing in action during the vandalism. Overall authority to maintain order rests with Government Secretary Miguel Ángel Osorio Chong, who negotiated with CNTE leaders but did not quell their marauding. His spokesman said that [Gobernación] “facilitates negotiations so that demands can be addressed directly with the states.”

Even if the legislation is modified, Mexico desperately needs big companies with strong balance sheets to spur the discovery and production of energy, lest it become a net oil exporter by 2020 as projected. Peña Nieto has carried the ball thus far; he must now depend on Osorio Chong to run interference for him to ensure that criminals and hot heads don’t scare off investors.

Categories: Mexico - El Centro

About the Author(s)

George W. Grayson is the 1938 Professor of Government at the College of William and Mary. He focuses on Latin American Politics, with a particular interest in Mexico. He has written 30 books and monographs on international affairs.  Most recently, he co-authored, with Sam Logan, The Executioner’s Men: Inside Los Zetas (to be published by Transaction Press in March 2012).  His other publications include: Consequences of Vigilantism in Mexico for the United States (Strategic Studies Institute, U.S. Army War College, 2011); Mexico: Narco-Violence and a Failed State? (Transaction 2010), La Familia Drug Cartel: Implications for U.S.-Mexican Security (Strategic Studies Institute, U.S. Army War College, 2010); and Mexico’s Struggle with Drugs and Thugs (Foreign Policy Association, 2009). He is a Senior Associate at the Center for Strategic & International Studies in Washington, D.C. and an Associate Scholar of the Foreign Policy Research Institute in Philadelphia. Grayson earned his B.A. at the University of North Carolina (Chapel Hill), his M.A. and Ph.D. at the Johns Hopkins University (SAIS), and a J.D. at the Marshall-Wythe School of Law.  He is a member of Phi Beta Kappa.