Mexico’s state-owned oil company, Pemex, has been repeatedly taken for a ride by many of its contractors in recent years, losing billions of dollars while doing precious little to seek redress. Reuters reports:
Reuters identified more than 100 Pemex contracts signed between 2003 and 2012, worth $11.7 billion, that were cited as having serious problems by the Federal Audit Office of the lower house of the Mexican Congress. The allegations ranged from overcharging for shoddy work to outright fraud. The deals were worth about 8 percent of the $149 billion in Pemex contracts registered in Mexico’s federal contracting database in that period.Pemex almost always disregards these warnings. From 2008 to 2012, the most recent year of available data, the congressional auditors issued 274 recommendations that Pemex take serious action over contract irregularities — either press criminal charges, discipline employees or claw back money.
Of particular concern are cases in which fraudulent contractors had known connections with drug cartels:
Among the contractors that slipped through this net was Francisco “Pancho” Colorado, an alleged associate of the Zetas, one of Mexico’s most murderous drug cartels. His company received tens of millions of dollars from Pemex even after the SFP sought to ban it for alleged fraud. He was later convicted in U.S. federal court on unrelated charges of laundering money for the Zetas, and is now appealing the verdict.
Peña Nieto knew he had his work cut out for him when he was elected on a reform agenda, and he likely knew that changing Pemex’s ways would be one of the most important and difficult tasks on that list. The notion that Mexico’s oil reserves are managed by the government, and therefore notionally by its people, has a strong cultural resonance, which has made reforms difficult to push through in the past.But as the country’s conventional reserves start to mature, the inefficiencies that so often come with state-run companies are standing out more and more. Peña Nieto has made some important inroads; Pemex is starting to relinquish its control on reserves, allowing private and often foreign firms to come in and lend their expertise toward extracting crude from unconventional plays offshore and trapped in shale.But as this recent Reuters report shows, the problems surrounding Pemex won’t be solved overnight, or even during Peña Nieto’s term. These issues, including a worrying link between contracting corruption and the country’s deadly drug cartels, have had decades to foment. There are plenty of reasons to be optimistic about Mexico’s prospects, but it looks like some of our southern neighbor’s problems are worse than we thought.