Mexico City refinery closed U.S. loan guarantees soar

MEXICO CITY — MEXICO CITY -- Bowing to national and international pressures, President Carlos Salinas de Gortari closed a polluting oil refinery yesterday, while U.S. officials for the first time confirmed that loan guarantees to the state oil monopoly -- a major player in the anti-smog campaign -- could go as high as $6 billion.

The refinery closing and the loan guarantees come at a time when both countries are under mounting pressure to do something meaningful about Mexico's horrendous pollution problems. Earlier this month, ozone pollution reached a record 100 times the World Health Organization standard. The ozone level is termed "very dangerous" under the Mexican environmental measuring system.


At stake is the proposed free-trade agreement between Canada, the United States and Mexico, who together would form the world's largest market.

American opposition to a free-trade agreement has centered, in part, around environmental concerns. Critics say that U.S. industries might move south of the border to take advantage of Mexico'spoorly enforced anti-pollution laws.


Two key congressional players in the free-trade process, Representative Dan Rostenkowski, D-Ill., and Sen. Lloyd Bentsen, D-Texas, wrote President Bush earlier this month and told him that ecology and other issues must be addressed in the talks or in parallel negotiations.

Failure to win the support of Mr. Rostenkowski, the House Ways and Means Committee chairman, and Mr. Bentsen, the Senate Finance Committee chairman, would almost certainly spell doom for the free-trade negotiations. Their March 7 letter caused a high-level conference among U.S. Trade Representative Carla A. Hills, Environmental Protection Agency Administer William K. Reilly and Robert B. Zoellick, the State Department counselor and a main player in the trade negotiations.

A few days later, the Mexican press quoted unnamed officials of Pemex, the state oil monopoly, as saying the U.S. Export-Import Bank would grant credits billions of dollars higher than previously announced.

U.S. officials, who refused to be named, confirmed that Washington could go as high as $5 billion to $6 billion in a multiyear package of Export-Import Bank loan guarantees to Pemex. If so, the figure would far surpass the $1.5 billion guarantee announced last year for oil exploration and related equipment.

Even that smaller guarantee was "unprecedented" in size, according to a report on the Mexican economy by the U.S.Embassy here.

The U.S. officials emphasized that the guarantees would not hinge on U.S. entry into Mexico's state-owned oil industry. Mexico has already ruled out oil in the trade talks.

The closing of the polluting oil refinery also was viewed as a step toward alleviating the concerns of Congress and bolstering the image of President Salinas as a man of forthright action.

The political opposition and even members of the ruling Institutional Revolutionary Party (PRI) had criticized the Salinas administration for failing to take stronger measures in alleviating this year's record smog.


The refinery -- among the city's top 10 industrial polluters -- will be turned into a green zone, Mr. Salinas said at ceremonies marking the 53rd anniversary of Mexico's nationalization of its oil industry.

"We will plant trees where today exist the pipes of the refinery," the Harvard-educated president said.

Vania Munoz, a Pemex spokeswoman, said the refinery's 5,300 employees would be transferred to jobs at Mexico's eight other refineries, none of them in the polluted Valley of Mexico.

The closing will further erode Mexico's waning refinery capacity by 105,000 barrels a day. While some of it can be made up at other refineries, the closing will mean Mexico will have to import more gasoline, said Francisco Rojas, Pemex's chairman. Mexico's imported gasoline bill rose nearly 40 percent, to $361 million, last year.

The 58-year-old refinery was blamed for producing at least 12 pollutants, including carbon monoxide, the president's foreign press spokesman said.