ANALYSIS-Trial of ex-Pemex boss threatens to lift lid on Mexico's 'cash box'


By Dave Graham

MEXICO CITY, July 21 (Reuters) - The trial of a former boss of Petroleos Mexicanos threatens to expose years of alleged malpractice at the state oil company and provide a canvass for Mexico's leftist president to depict rot at the heart of government that he has vowed to clean up.

Once a symbol of Mexican self-reliance and ingenuity, the firm known as Pemex PEMX.UL became increasingly beset by graft accusations and financial problems, crushed under a mountain of debt and taxes.

The extradition to Mexico of former Pemex chief executive Emilio Lozoya on corruption charges has enabled President Andres Manuel Lopez Obrador to put a face on the company's woes and back his assertion that previous governments led it to ruin.

Both Lopez Obrador and the Pemex management he appointed emphasize that they have made a clean break with what they describe as corrupt practices of the past.

Lozoya's trial could boost Lopez Obrador's fortunes in the run-up to mid-term congressional elections next year. Still, creating lasting change at the giant company is likely to prove a daunting task, analysts and policymakers say.

Over time, Pemex became so deeply embedded in public sector contracts that many Mexicans came to view it as a government "cash box," said Heriberto Galindo, who was a congressman for the centrist Institutional Revolutionary Party (PRI), which governed during Lozoya's 2012-2016 tenure.

"Pemex grew so much that the government lost control of it," said Galindo, a onetime member of the lower house energy committee. "In terms of oversight, finances and public works."

Prosecutors contend that, among other things, before becoming CEO, Lozoya solicited and obtained funds from Brazilian company Odebrecht, and funneled cash into the PRI's 2012 election campaign for former president Enrique Pena Nieto.

Then, as boss of Pemex, he awarded contracts to Odebrecht and did the same for steelmaker Altos Hornos de Mexico after receiving bribes, they allege.

Odebrecht has admitted paying bribes in Mexico. The bosses of Altos Hornos have denied wrongdoing, as has Lozoya.

Lozoya's lawyers have said he acted on Pena Nieto's orders in conducting major transactions that have landed him in trouble. Pena Nieto has not been charged with anything and has rejected any suggestion of wrongdoing.

Lopez Obrador says he expects Lozoya to catalogue corruption under Pena Nieto, whose rule the president has castigated as the culmination of a 36-year "neoliberal" project that fed inequality and devastated Mexico.

"The trial of Mr. Lozoya will really help to clear these things up so we find out what happened and can continue the fight against corruption," he said last week.

In 2013-14, Pena Nieto opened up the oil and gas market to private investors, some of whom teamed up with former Pemex executives to claim lucrative oil fields. But the tax burden stayed high and Pemex slipped further into debt.

After defeating the PRI and taking power in December 2018, Lopez Obrador halted the market liberalization, which he casts as a covert attempt to privatize Pemex.


Lozoya was due to face an initial court hearing on Friday when he landed in Mexico. Instead, he was taken to hospital with health problems. Proceedings should begin in coming days.

Lopez Obrador - whose approval ratings have been eroded by recession and his handling of the coronavirus pandemic - appears already to have reaped benefits from the case.

A daily gauge of his popularity by polling firm Consulta Mitofsky has risen every day since Spain said on July 6 it would extradite Lozoya.

The 66-year-old president has invested considerable political capital in reviving Pemex, which employs about 125,000 people. But that will not be easy, contemporaries warn.

"If there was corruption in Petroleos Mexicanos during (past) administrations, it doesn't mean there won't be corruption in this government," said ex-lawmaker Galindo.

Created as a monopoly by the PRI in 1938 from the expropriation of foreign oil assets, Pemex was an engine of Mexico's rapid postwar industrialization through the 1970s. By 2008, its revenues provided 44% of the federal budget.

Pemex lurched into controversy as the decades-long, one-party rule of the PRI crumbled in the final decades of the 20th century.

Scandals embroiled Pemex in the 1980s, and again two decades later, when the oil workers' union channeled millions of dollars into the PRI's 2000 presidential campaign.

The PRI lost that election, ushering in a dozen years of rule by the center-right National Action Party (PAN) - and the period of Pemex's peak oil production.

But the PRI's corrupt habits proved hard to kick for the parties that muscled in on its turf, lamented Francisco Burquez, a PAN senator between 2012 and 2018.

"All the parties got into that game," said Burquez.

Corruption scandals also roiled the PAN and other parties, and the PRI returned to power in 2012 under Pena Nieto. Once he became Pemex CEO, Lozoya himself pointed reporters to suspected graft at the company under the PAN.

(Reporting by Dave Graham; Additional reporting by Stefanie Eschenbacher; Editing by Rosalba O'Brien)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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