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Participate in Pemex

Monday, November 5, 2012

Mexico’s Pemex will be opened to private investment, President Enrique Peña Nieto said last week.

Peña provided no details, as to how a public-private relationship would work in the case of Pemex, a state-owned company, which has had a monopoly in Mexico’s oil sector since 1936.

Selling shares to private investors would be politically problematic, given that millions of Mexicans still see Pemex as a crucial part of the national identity, and that Peña’s Institutional Revolution Party controls neither house of Mexico’s Congress.

Nor would many investors be interested in buying part of a company, which is notoriously inefficient, mainly because of a bloated workforce.

But from the viewpoint of Peña, as well as many industry experts, Pemex must shake up a program, which produces an ever-dwindling supply of domestically-produced petroleum and gas.

To become more productive, Pemex needs major investments in new technology, in areas which include natural gas exploitation, and reduction of environmental impact.

Private investors, both local and foreign, could work with Pemex on individual projects, using an earn-out formula to share profits, without the need for stock ownership.