The Neverending Story: Mexico's President Enrique Peña Nieto And Director Alfonso Cuarón Bump Heads Over Energy Reform

 @PReyMallen on May 02 2014 6:35 AM
Alfonso Cuarón
Filmmaker Alfonso Cuarón, who won the Oscar to Best Directing for "Gravity," has made public his concern for Mexico's energy reform. Reuters/Max Morse

MEXICO CITY -- Filmmaker Alfonso Cuarón is a source of pride for Mexico. He won an Oscar for directing “Gravity” and was included in Time magazine’s “100 Most Influential” list. That puts President Enrique Peña Nieto in the unenviable position of having a public fight with the adored Cuarón over another matter of Mexican pride: state-owned oil company Petróleos Mexicanos (Pemex).   

When President Peña Nieto announced last year his plan to reform several key sectors of the Mexican economy, he made it clear that modernizing the outdated oil industry was one of his priorities. At the center of this reform was the opening of Pemex to foreign and private investment.

Cuarón, who has been openly critical of the government, sent the president a letter on Monday, questioning the validity of the reform. The letter, which was made public through major newspapers and the website Diez Preguntas, demanded answers about 10 key aspects of the reform, ranging from the price of gas to environmental concerns.

“The process of these reforms was weak and it lacked in deep discussion. Its announcement was made as a propaganda campaign that evaded public debate,” the filmmaker wrote. “Your government did not share with me, or all Mexicans, the key aspects to understand the reform.”

Cuarón has plenty of company in being suspicious of the reform. Opponents saw it as a sellout of their country’s oil major, a symbol of independence since it was expropriated in 1937 by then-President Lázaro Cárdenas.

The government is determined to open Pemex. “This is our time to update our energy industry, to make the most out of our resources, and enter a new chapter in the history of Mexico,” Peña Nieto said during the presentation of the bill.

Days after the presentation, Pemex workers spoke out against the reforms. Mexico City’s former mayor, Marcelo Ebrard, expressed disapproval, and Cárdenas’ own son, Cuauhtémoc Cárdenas, led protests all around the capital.

Cuarón said his main concern is whether Mexicans will benefit from the reform. “I will celebrate this reform with you,” he said in the letter, “as long as the main benefits, social and economical, are for my country and its citizens.”

The opponents concern is twofold: on one hand, Pemex brought in more than half of the federal budget for 75 years. “If oil contribution is no longer going from Pemex to the treasury, how is the government planning to make up for it?” Cuarón asked.

On the other hand, if private and foreign companies come into the picture, opponents fear that multinationals will influence the government’s decisions. “Large oil companies have as much power as many governments,” the filmmaker wrote. “What measures will be taken to make sure our democracy is not compromised by their potential demands?”

Peña Nieto tweeted that he had received the letter, saying that he appreciated the contribution to the debate. His administration believes that the benefits for the Mexican people are clear, and it is just a matter of explaining the bill more carefully.

“Lack of information has played a huge part in the opposition of our government,” Peña Nieto said in a televised interview.

International analysts agree with him. The Wall Street Journal praised the reform, calling it “extraordinary.” BBVA Research said that foreign investment will bring significant annual growth to the country, and echoed the president in his belief that misinformation was at the core of the criticism.

“Bad reactions to the reform might respond to a lack of knowledge on the specifics of the bill,” the research firm’s report said.

Peña Nieto has repeatedly listed the reasons why he thinks the reform will be a benefit to Mexicans. He predicted that gas prices would decline in a maximum of two years, that Pemex would create 2.5 million jobs for Mexicans in the next 10 years and that GDP would grow by 1 percent before 2018.

“What we are trying to avoid here is the federal budget plummeting,” the president explained. “We need private investment for it.”

The president also specified that the profits from oil will still go to the Mexican government, and foreign companies will receive payment for their services.

As he has been doing since the reform was first presented in 2013, Peña Nieto promised that Pemex won't become a private company. “Pemex will remain 100 percent Mexican,” he said.

Pemex, though, has been in trouble for a while. The company, the eighth largest oil producer in the world, has been steadily dropping in production the past decade. The numbers from March 2014 show that the company is yielding 2.4 million barrels per day, the lowest since 1995.

The reform was approved by Senate and Congress in December 2013, and the latest specification to the law was presented on Wednesday. This last tweak lays out a new tax scheme for Pemex, by which the company’s fiscal obligations -- currently at 70 percent of production -- will be reduced to 65 percent. It also clarified that, in the bids to drilling projects, Mexican companies will have priority over international ones.  

These changes are expected to help Pemex increase its productivity. Foreign and private participation would bring newer equipment as well as funding, which will allow Mexico to exploit offshore oil reserves. The company isn't currently able to drill the country’s deepwater fields, which are estimated to hold 10.3 billion barrels of oil and 17.3 trillion cubic feet of natural gas, according to Pemex calculations. But with outside help, these resources could become available.

The president and the international business community are on board, but they have yet to persuade the Oscar-winning director and his large, passionate audience.

 

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