BUSINESS/FINANCIAL DESK

Mexico's New Energy Chief Faces Entrenched Monopoly

By JOHN MOODY (NYT) 1163 words

He comes to the job with impressive political credentials, having spent the last three years as the congressional leader of the National Action Party of President Vicente Fox. And he will need all of his connections to succeed against a politically potent opposition. What may help just as much, though, is a growing consensus -- even among opponents -- that change is necessary.

The problems ahead for Mexico's energy industry are clear, Mr. Calderón said in a recent interview. He estimated that his oil-rich nation needs more than $150 billion in investment in the next decade to stem a rising tide of natural gas, petrochemical and gasoline imports, since the government does not have the cash to do it.

Allowing private companies in, however, would probably require constitutional changes that many Mexicans liken to treason and that Congress has repeatedly rejected. But without such changes, and soon, the country, the world's sixth-largest oil producer, could find its economic stability threatened by the rising debt from investments in production needed to keep up with domestic energy demand.

''I think time is running out in Mexico for the important changes,'' Mr. Calderón said.

The United States could suffer, too, since Mexico is one of its main suppliers of crude oil.

Mr. Fox has floundered in Congress not only on energy proposals but also on changes to tax and labor laws aimed at increasing government revenue and making it easier to lay off workers. Without the changes, many analysts and economists say, the Mexican economy may continue to limp along at growth rates of 1 percent or 2 percent a year.

The appointment of Mr. Calderón, a career politician and a lawyer, signals a change in strategy by President Fox. He replaces Ernesto Martens, a businessman who had previously run the country's largest glassmaker and the national airline company, but who had no experience in politics.

Mr. Calderón, on the other hand, pushed the last three budgets through a divided legislature. The hope is that he can do the same with energy reform.

The first challenge is to get the politicians to even talk about the issues. ''If you put energy on the agenda in the Senate, no one will rise to speak,'' said Demetrio Sodi, a senator for the left-of-center Party of the Democratic Revolution, one of the parties that opposes constitutional change of the energy sector. Mr. Sodi is also a member of the Senate energy committee, which has not met in the last 15 months.

He added, however, that many people who publicly defended the oil monopoly Petróleos Mexicanos in the past ''say in private that they agree private investment is needed.''

The reason people are thinking the previously unthinkable is simple. Petróleos Mexicanos, known as Pemex, has been importing a lot of gasoline from the United States -- sometimes more than 100,000 barrels a day -- to meet domestic demand. In addition, its natural gas imports have sometimes reached a billion cubic feet a day in 2003 because Pemex has failed to develop its own vast reserves and continues to burn off gas in its offshore southern oil wells since it lacks the infrastructure to get it ashore. Mexico also imports close to $10 billion a year in petrochemicals; the country had a total trade deficit of $7.9 billion in 2002.

Pemex is one of the most inefficient oil companies in the world. According to ''Pemex: An Uncertain Future'', a recent book by the oil industry analyst David Shields, Pemex produces 87 barrels a day of oil per employee. By comparison, he said, Petróleos de Venezuela, another state-owned oil company in Latin America, produces 195 barrels a day per employee, and Royal Dutch/Shell turns out 300.

Pemex also pays more to the government than it makes in profit, financing about a third of public spending. In 2002, it had a net loss of $2.96 billion after paying taxes of $28.5 billion. To keep up, it is borrowing more and more. By the end of 2002, its debt reached $58.7 billion.

The Mexican government itself also has big foreign debts, totaling $76 billion.

Argentina's economy, which is about two-fifths the size of Mexico's, collapsed in 2002 under the weight of $95 billion in foreign debt.

Pemex's problems have multiplied even as the company reached record oil production of 3.4 million barrels a day after the United States invaded Iraq.

The state-owned electric utilities, the Federal Electricity Commission and Central Power and Light, are no better off. They need more than $5 billion a year in new power plants and delivery infrastructure just to keep the lights on in Mexico. With an annual federal budget of about $150 billion for all programs including pressing needs like poverty relief and education, the government cannot spare even the $5 billion.

Mr. Calderón, who as president of the National Action Party, was one architect of Mr. Fox's 2000 presidential victory, is aware that the task of overhauling these industries is a daunting one.

''I feel an enormous burden; it won't be easy,'' he said. Still, he said, ''having been in Congress in such difficult times makes everything else seem easier.''

He has already begun talks with pivotal politicians. ''My job is to open the political dialogue and look for understanding,'' he said. ''This reform is subject to certain ideas and restrictions that are very sensitive in Mexico.''

School textbooks here still eulogize the 1938 nationalization of oil as a symbol of the country's ability to stand up to the United States. Such sentiment makes privatization unthinkable, so perhaps the most Mr. Calderón will get is an easing of restrictions to allow more private investment -- perhaps joint ventures like the 50-50 partnership Pemex has with Shell in the Deer Park refinery in Texas, something it could not do in Mexico under current laws.

Even that would need a shift in public opinion here.

''How do we adapt society to the new reality?,'' Mr. Calderón said. ''How do we adapt Mexicans to the deficiencies we have? It's a new situation and it has to be explained to people.''

With demand for natural gas, electricity and gasoline all set to rise as much as 5 percent a year, according to government estimates, Mexico will increasingly have to import much of its energy from the United States unless he can succeed.

''The reforms in the energy sector,'' Mr. Calderón said, ''could mean the difference between a developed Mexico and an undeveloped Mexico.''

CAPTIONS: Photos: The aging Pemex oil refinery at Minatitlan is long overdue for the start of a planned modernization. Below, Felipe Calderón, left, Mexico's new energy minister, with the nation's president, Vicente Fox. (Photo by Associated Press); (Photo by Pemex via Bloomberg News)(pg. W7)