Long closed to foreign involvement, Mexico's oil industry may be opening up Deadly explosions tarnished image of Pemex monopoly


MEXICO CITY -- The gasoline explosions that killed 200 people in Guadalajara have so tainted the national oil company's image that it may serve as a wedge to open Mexico's oil industry to foreign investment -- one of the principal goals of the Bush administration.

Petroleos Mexicanos, the national oil company known as Pemex, is the third-biggest foreign provider of crude oil to the United States. The Bush administration fears Mexican exports will dry up if it does not get a heavy infusion of capital.

"It is now not a question of if but when the foreign investment will be allowed," said a senior Pemex official, who spoke on the condition of anonymity.

Francisco Casanova, Pemex's chief spokesman in Mexico City, denied there was any change in the works or any thought to lifting the ban on foreign investment.

Pemex has been out of bounds to ventures with foreign investors since 1938, when Mexico's oil fields were nationalized to popular acclaim. Yet the lack of capital in recent years has has left it unable to exploit promising reserves and maintain its facilities.

In contrast to Venezuela's national oil company, which has a $48 billion, five-year investment plan that includes direct foreign participation, Mexico's five-year plan calls for investing just $20 billion in exploration and development.

Pemex officials conceded that the $20 billion cannot be obtained without foreign investment. Pemex could borrow much of the money, but that would increase Mexico's $100 billion foreign debt and risk re-igniting inflation.

The Bush administration has been pushing Mexico to accept risk contracts for oil exploration. The contracts permit foreign oil companies to get a percentage of the oil that they discover in exchange for exploration and production investment.

The foreign-investment issue is bound up in the talks over a free-trade agreement involving Mexico, Canada and the United States. The talks could either settle the issue directly or lead to a new and separate solution, say Pemex officials

President Carlos Salinas de Gortari has officially removed oil from the bargaining table, fearing a political backlash for suggesting that this company -- a symbol of national sovereignty -- would be open to foreigners.

That fear was considerably lessened when Pemex's prestige blew up in Guadalajara, blemishing its reputation and drawing into question its ability to safely run its operations without outside funds and support.

Mr. Salinas announced that the government would exercise even closer control over the previously autonomous Pemex, but it was unclear how close that relationship would be. Pemex is technically under the Secretariat of Energy, Mines and State Industry.

Salinas administration officials now say privately that the only fiscally sound way Pemex can raise capital is through foreign investors.

The need is compelling since Pemex -- the world's fifth-largest oil company -- provides the Mexican government with about 20 percent of its revenues. A year-old Pemex study warned that if production could not keep pace with increasing domestic demand, the company would have to halt its oil exports by 2004.

Now the outrage engendered by the Guadalajara disaster has caused Mr. Salinas to speed up Pemex's badly needed modernization.

The president ordered Pemex this month to come up with a decentralization plan within 30 days. The main aim of the restructuring is to provide greater accountability.

And Pemex has bowed to presidential prodding by hiring Bechtel Corp., a San Francisco engineering company, to investigate its safety procedures, primarily because practically nobody outside the company believes what Pemex says about itself.

The state-owned company's self-proclaimed safety and maintainance program was exposed with horrifying results April 22 when nearly five miles of Guadalajara's streets were reduced to rubble.

An attorney general's report on April 26 found that gasoline from a corroded Pemex pipeline had leaked into the Guadalajara sewer system, providing the main ingredient for the explosions that injured 1,400 people and destroyed more than 1,500 houses and businesses.

According to a May 5 Pemex press release, Bechtel will examine the company 36,000 miles of pipeline, and its storage facilities, refineries and training programs.

"It needs a modern foreign company like Bechtel to give it credibility," said George Baker, an expert on Mexican oil at the University of California at Los Angeles. "They are buying the competence they do not have."

But many foreign oil companies will refuse to share their technical know-how unless they can share in the oil or profits, Mr. Baker said.

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