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ANALYSIS-Deadly Pemex blast tests Mexico's new president

Source: Thomson Reuters Foundation - Sun, 3 Feb 2013 03:34 PM
Author: Reuters
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* Government: still too early to say what caused the blast

* State oil giant could be opened up to more private investment

* Pemex to explore joint ventures with Brazil's Petrobras

* Opportunity for Pena Nieto to show a more transparent PRI

By Michael O'Boyle and David Alire Garcia

MEXICO CITY, Feb 3 (Reuters) - A deadly blast at Mexican state oil firm Pemex's headquarters is the first key test of new President Pena Nieto's promise that his party has broken with a past of shady cover-ups, and if handled properly, could help him overhaul the lumbering giant.

The disaster on Thursday struck two months into Pena Nieto's presidency, just as Congress was preparing to discuss his plans to open up the state-run energy industry to more private investment.

The government has said it is still too early to say if the explosion that killed at least 34 people at Pemex's main offices in Mexico City was due to an attack, an accident or negligence.

If it was an accident that points to insufficient investment in Pemex, it could convince more Mexicans that something has to be done to make the monopoly more efficient and safer.

"The opportunity here is to make everybody aware that unless Pemex does something about this, things are only going to get worse," said a recently retired senior Pemex executive, asking not to be named.

"I think these are very savvy politicians and they will look for arguments based on this in favor of opening up the industry."

However, if the government fails to deliver a transparent investigation and the Pemex explosion turns into a scandal, Pena Nieto may have a much tougher sell.

In one apparent early misstep, Pena Nieto faced criticism on social media after local media reported he was vacationing on Saturday. He returned to the scene of the blast at night, said he was overseeing rescue efforts and announced that one more body had been found. Three more remain missing, he said.

Leading lawmakers told Reuters on Saturday that they would continue to push for changes to the oil industry while still keeping Pemex under state control.

"We are going to back a reform that strengthens Pemex and helps it secure the capital it needs," said Juan Bueno Torio, a former Pemex executive and a lawmaker for the opposition National Action Party (PAN) in the lower house's energy committee.

David Penchyna, the head of the Senate's energy committee from Pena Nieto's Institutional Revolutionary Party (PRI), said there should be no link made between the blast and the planned energy overhaul, part of a wider economic reform package.

"There's no reason to postpone or speed up the energy reform due to an unfortunate event," he said.

However, some saw a risk the incident could cast a pall over reform plans, and that the discussion could be pushed back.

"This is a very delicate discussion because there are 33 people dead in a frankly tragic situation," Javier Oliva, a political analyst at the National Autonomous University of Mexico, said before the death toll rose to 34.

Over the years, Mexicans have watched a long parade of farcical, inconclusive investigations into high profile crimes and devastating accidents, leaving them deeply skeptical of official explanations.

BREAK WITH THE PAST?

Pena Nieto, 46, took power on Dec. 1 promising to clean up the PRI, which ruled Mexico for most of the last century. Decades of corrupt and bumbling administrations have left him a legacy of distrust to overcome.

"I hope they tell us the truth, there are so many doubts," said Edilberta Ramirez, a 47-year-old maid, who lives outside the capital. "Before, the PRI got away with whatever they wanted."

Decades of mismanagement and a heavy tax burden have hobbled Pemex and its oil output has slumped. If major reforms are not undertaken, the government warns one of the top oil suppliers to the United States could itself be importing crude by 2018.

Pemex has been Mexico's oil monopoly since the PRI expropriated oil wells from U.S. and British companies in 1938.

Politicians have long portrayed it as a cornerstone of national pride for Latin America's No. 2 economy but the case for reform has grown stronger in recent years as production has fallen and people were angered by its poor safety record.

More than 300 people were killed when a Pemex natural gas plant exploded in 1984. Around 200 others died in a series of underground gas explosions in the city of Guadalajara in 1992 and Pemex was found partly to blame.

In the last year, an explosion killed around 30 at a gas facility and an ocean rig burned.

Pena Nieto announced last week that Pemex would explore joint ventures with Brazilian oil firm Petrobras, which sold public shares and transformed itself from a shoddy state-run shop into a leader in deep water exploration.

Many Mexicans jumped on that news as a sign that Pena Nieto wants to sell Pemex, despite his repeated claims that he will maintain government control of the oil industry. And some believe the government will use its investigation into the explosion for its own purposes.

"They're going to cover everything up ... It will be the same old farce," said Carlos Cruz, 53, a chauffeur from Mexico City who said he voted for Pena Nieto in the election last July. "This is all about the privatization of Pemex."

For decades, Mexican presidents have bled Pemex's profits to fund government spending. The oil money finances about a third of the federal budget but Pemex has often been unable to plow enough profits back into modernizing its infrastructure.

If the cause of the blast comes down to faulty maintenance, Pena Nieto will have more ammunition to push for making Pemex more like a private company and cutting its tax burden.

"If it's not sabotage, it's very poor management. And it should make clear that Pemex needs to modernize," said Miriam Grunstein, an energy specialist at Mexico City's CIDE research center. "This just can't happen to the one of the biggest oil companies in the world."

If sabotage or a bomb are to blame, the government will need to quickly catch the culprits and prosecute them, although it is hamstrung by a justice system widely seen as failing.

Any evidence that a drug gang or a radical leftist group was behind the explosion would likely undermine growing investor interest in Mexican assets. (With reporting by Miguel Angel Gutierrez, Dave Graham and Liz Diaz; Editing by Simon Gardner, Kieran Murray and Sandra Maler)

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