The New Theft of Mexican Oil
Adolfo Gilly – Sin Permiso
Translated by Ernesto Paramo *
March 30, 2008
Seventy years ago, foreign oil companies declared that national technological ineptitude would force Mexico to ask them to return within a few months. Today, seventy years later, Mexico’s political and big business elite have decided that the end of those “few months” is finally here. Yes, now foreign capital must return.
1. The cost of producing a barrel of oil today, for Pemex , is around $5 a barrel. The price of selling it on the open market is as high as $100 or more. The difference between the first figure and the second one is what’s called oil revenue. Who ends up with it was the central theme of the oil expropriation exercise of seventy years ago. Who will end up keeping the Mexican oil revenue is, yet again, the central theme of this debate.
Understood: No-one is proposing to “privatize Pemex .” However, what they do want to do is to transfer oil revenue into private hands, while the Mexican State, under the “Pemex” label, keeps the facilities, which will mainly have only scrap value. This operation consists of opening the oil industry, totally or partially, to private investment (foreign and domestic capital) and to its needs for profit. The works of exploration, extraction, refinement, distribution and transport, today carried out by Pemex as a state owned company, will be transferred into private hands. This operation would mean the transfer of the oil revenues that are now the nation’s property, into private hands and profits. The correct and only name for all this is theft.
This is what they have already done with the communal lands of the ejidos , with the transmission frequencies graciously handed over to the television and telephony monopolies, and which up until that point belonged to the State. They were gifted by the government of Carlos Salinas de Gortari (and his top officials at the time) to Carlos Slim and his friends. In La Jornada (March 7, 2008, page 26), Carlos Fernández-Vega pointed out that in 1991, when the privatization of Telefonos de Mexico  took place, Carlos Slim’s fortune was estimated to be $1.6 billion dollars; by 2008, it had grown to $60 billion dollars (a 3,630 percent increase). It is also important to note that this fortune is not only the product of mere financial, industrial or commercial profit, but mainly, the product of the theft that allowed the transfer of Telefonos de Mexico and its profits, which were part of the national patrimony, into private hands.
2. Pemex has been a financial failure, say those who want to sell it off. Its debts have accumulated, especially because of Pidiregas , and now they are equivalent to the entire value of its assets. It is necessary to sell, under whatever circumstances.
Pemex was pushed deliberately into this situation by the successive governments of Carlos Salinas de Gortari, Ernesto Zedillo and Vicente Fox. To bankrupt Pemex and to make privatization inevitable has been a common policy, pursued and designed by the political, financial and big business elites that control Mexico. There are a multitude of studies which prove this. They are not “traitors to their country;” using such language only replaces rational discourse with innuendo. They are part of a leading political and big business elite that believe, sincerely, that their own private interests are the same as the national interest. Just as all ruling classes do, all over the world, from the USA to Russia and Saudi Arabia.
As the Mexican population at large does not agree with that way of thinking, these leading elites have had to promote their plans for taking away Mexico’s oil revenue, following two lateral routes: The first one started in 1988 and had the object of dismantling Pemex—twenty years of a conflict in which the first shots were directed at “la Quina”  in order to replace him with similar but more docile charros . The second one is the start of a propaganda campaign spreading ideas such as “the hidden treasure of Mexico” that Mexicans cannot extract on their own in today’s technological universe, especially with Pemex in such dire straits.
This circular lie, which I will not call cynical, because as I said already, there’s no point in using epithets, is very similar to the one used by the foreign companies when, seventy years ago, Mexico’s oil expropriation returned the benefits from underground oil deposits to the nation where those deposits were located; its“ hidden treasure.” As they left the country they asserted that national technological ineptitude would force Mexico to beg them to return in a few months. Their predictions were not fulfilled: Mexican technicians and workers turned Pemex into one of the most productive oil companies in the world.
Today, seventy years later, Mexico’s political and business elites think that the ” few months” are finally at an end, and that now is the time for foreign capital to come back and extract the “ hidden treasure” again, so they can share it all among themselves.
Will they get away with it this time? I don’t think so.
3. Many studies have shown quite clearly, with verifiable facts, the direction and the intention of policies that have led Pemex to a situation of financial and technological bankruptcy. Among these studies, I will take the liberty of quoting from one conducted by David Ibarra, “The Dismantling of Pemex,” February 19, 2008 (Forma Magazine, February, 2008). Its title reflects its content exactly. These are some of the most relevant paragraphs.
• The central obstacles to revitalization of the oil industry emanate directly from a chronic absence of a long term energy strategy as a fundamental element of a public policy regarding development and national security. Together with this element we find the indiscriminate use of oil revenues to plug holes or try to correct imbalances in public finance.
• It is necessary to underscore the very worrying and deliberate weakening of the Mexican Oil Institute [Instituto Nacional del Petroleo], which gave up the investigation and evaluation of worldwide technological advances. However, in spite of everything, oil technology is a mature technology that can be acquired anywhere without major obstacles. Even in the case of deep water technology, there are several specialized companies that sell their services to the most important oil consortiums in the world.
• For more than ten years the modernization of installations, to increase processing oil capacity, according to an increasing demand, has been postponed. The exceptions are the processing plants of Cadereyta and Madero.
• The de-capitalization of Pemex has been brutal. It has taken place systematically and deliberately for the last 15 to 20 years. It is necessary to demand an explanation of this phenomenon, since the company, despite its inefficiencies, has never stopped generating revenues and making money. The margin between its income and expenditure has been very wide. The operation yields have raised nine fold between 1995 and 2006 and the profits before taxes have gone from 68.9 to 584.4 billion Mexican pesos for the same period. On the other hand, taxes have increased from 74.9 to 583.9 billion pesos for that period. Looking at these figures as a whole, we realize that Pemex has transferred the totality of its oil revenues to the Treasury and has contributed three trillion pesos from 1995 to 2006. Few, if any, oil companies produce such high profits and none of them pay such a high level of taxes that they are pushed into the red.
• The annual capital investment of Pemex – despite a moderate upturn in the last three years – is still systematically lower than it was in 1982, twenty five years ago [...] In contrast, the investment made through Pidiregas represents already 89% of the company’s capital formation (2006).
• Whether we like it or not, the fundamental pitfall of this policy of eliminating oil revenues as a factor from the economy and any fiscal reform of any kind, is that it is a political decision, no more. It is born as much from the opposition (from both the national and foreign elites) to paying taxes, as to the lack of republican boldness and the dependency of the political parties to the powers that be. This and nothing else is Pemex’s structural, fundamental problem [...] We need to remember that the Mexican tax system is distinguished by its very modest rate of collection and its high regressivity. The collection of taxes only goes as high as 11 per cent of GDP, in contrast with an average of 36 percent in the OECD countries, 25 percent in the US and 34 percent in Brazil.
The process of privatization is already under way:
• The privatization of the buying, selling and transportation of gas and the selling of petrochemical installation operations, the subcontracting of many services through the replacement of the Mexican Oil Institute [Instituto Mexicano del Petroleo] with external consultancy services, and the outsourcing of other functions like the hiring of ships, platforms and other facilities are all examples of the many cases that litter the deliberate fragmentation of Pemex and the transfer of business opportunities mainly to foreign private sector companies.
• The debate about energy reform as far as Pemex is concerned, instead of centering obsessively on either partial or total privatization, should concentrate in the elimination of all obstacles that hinder its upgrade and performance as a world class consortium and a source of revenue, to benefit internal development.
The dismantling of Pemex:
The abuse in which I have just engaged by quoting such long passages from David Ibarra’s document does not imply agreement with each one of his ideas, but is a reference to the work of a serious researcher in order to support reflection on the consequences that the dismantling of Pemex, and the direct transfer of the oil revenue into the hands of national and foreign capital, might have for the future of Mexico.
4. The theft of Pemex, the delivery of the oil revenues into the hands of private capital, is not a mere economic or technological matter. This coarse lie has been repeated to distraction in an attempt to keep the discourse within very narrow parameters. What all this is really about is an attempt to reinforce the geo-strategic domination plan that has been pursued in many ways by the Pentagon and the White House in Mexican territory. The appropriation by private capital of oil revenues, in which the big Mexican capitalists will have a share, is subordinate to the above-mentioned strategy. The Pentagon needs neither the revenue nor the profits. However, it needs to secure direct control of the oil reserves to be able to feed its war machine just like in the ’10s and ’20s in the 20th century, until the party ended in 1938.
In the case of a conflict, whether warm or “cold”, the United States would need to secure control over all nearby oil fields, just as it would need to secure control, both political and territorial, over its continental fortress, from Alaska down to the Panama Canal, including all the sea and the islands situated between Florida and the coasts of Venezuela. Territory that since the 19th century, the White House has called, “Mare Nostrum.” This of course, includes its military bases, useless in the case of a global or intercontinental war, but always necessary to support their efforts for regional domination, as the nefarious use of Guantanamo demonstrates.
These geopolitical plans, which include a desperate urge to recover their control over the Venezuelan oil fields, are fed these days, by the unlimited and immediate support of president Bush for the “Punitive Expedition” of President Alvaro Uribe against Ecuador. The arrogance that led them to commit a deliberate massacre on foreign soil was meant as a warning to all and sundry, Sarkozy and Lula included, followed by an “apology” in the farce at the OEA. It was all about setting a precedent, and that has now been done.
The Plan Puebla-Panama and the Merida Initiative; the projects to control the Tehuantepec Isthmus; the destabilization of Mexico with its army firmly trapped in the “ war against narcotics ”, political repression and technological dependency. AFSA (Alliance for Security in the Americas), a pact for military subordination; NAFTA, the agreement for economic subordination, with its punitive clauses over rights, products, agriculture and Mexican migrants, are pieces in this scheme of domination. It is as if a powerful vacuum cleaner from the north was pulling this nation, up-rooting it from Latin America and sucking it into subordination and submission. As in the days of the Monroe doctrine, the governments of the United States always coveted Mexican resources and the Mexicans were always afraid.
It is in this context, and no other, that the PAN  government and its many political, religious and big business allies want to rob the nation of its oil revenues.
5. I am writing this piece today, Sunday, March 9th, 2008. It is exactly seventy years ago that General Lazaro Cardenas del Rio, President of Mexico, and Francisco J. Mugica, his Communications Minister — one of those who crafted Article 27 of the 1917 Constitution — after a visit to the Zacatepec cane sugar complex, left their car and walked alone through the cane fields discussing the crisis of the foreign oil companies.
That night, the president noted in his personal diary:
On the way back from Zacatepec, we stopped at 9:00 p.m. at the road junction that leads to Palmira, between kilometers 79 and 80 of the Cuernavaca-Acapulco highway, I called the Communications Minister, General Francisco Mugica, from outside the car, to let him know of my decision to decree the expropriation of all installations belonging to the oil companies if they refused to obey the ruling of the Supreme Court of Justice.
We said that an opportunity like this, to restore the nation’s oil wealth back to the nation, would hardly present itself again. Not to do it for fear of the economic consequences or the possible diplomatic demands from England and the United States would be unpatriotic and a serious dereliction of responsibilities, that quite rightly, the people would hold against us.
General Mugica strongly agreed with the idea of proceeding against the oil companies if they adopted a rebellious attitude.
The following night, March 10th, with the decision well thought out, the president’s notes become more explicit:
After returning yesterday evening from the sugar complex Emiliano Zapata, in Zacatepec, accompanied by the Finance Minister, Eduardo Suarez, and the Communications Minister, General Francisco J. Múgica, and other goverment officials, we stopped on the highway in the outskirts of Cuernavaca, between kilometers 79 and 80, and I and General Mugica walked towards Palmira, talking for more than an hour. We made reference to the reasons that the oil companies have behaved the way they have, reducing the sale of fuel and other business operations, as well as their many requests to their governments to support their demands against the Supreme Court.
We considered the circumstances that we might have to face if the British and US governments, trying to support the oil companies, were to threaten the Mexican Government with violent measures; but we also took into account the fact that there are clear signs indicating that a new world war is imminent with the provocations from the Nazi-Fascist imperialists, and that this would stop them from attacking Mexico if the expropriation were to proceed.
General Mugica is well aware of the oil companies conduct, through the trials that have taken place against them, in which he has taken part, and also because of the activities and outrages committed by their employees. He also witnessed all this himself during the years he was with me when I was commander of the Huasteca Military Zone in Veracruz. In recognition of his social convictions, his sensibility and patriotism, I asked him to formulate a draft for a manifesto to the nation, explaining the actions that the government is to take and asking for the support of the people at large, as this is a resolution that dignifies Mexico’s sovereignty and which will make a significant contribution to its economic development.
Up to this point, there has been no official mention of the reasons for the expropriation. These will be made public at an opportune moment.
Most of the political and financial centers, and even the companies themselves, believe that the government could at best, only order an occupation of the industrial installations and other company premises.
A decision about this most important problem cannot be delayed. — Los Pinos , 10:00 p.m.
In fact, it did not take long. The secret regarding the decision that had been taken stayed with the two Generals. That March 10th, nevertheless, the President met with some of his collaborators, among them Eduardo Suarez, Efrain Buenrostro and Ramon Beteta, to whom he intimated that the government was “determined to act radically, taking actions that could even include the expropriation of the oil industry,” but without revealing that the decision had already been taken. He agreed with them on the design of an economic plan, to be put into action in case the oil industry was expropriated.
In his notes of March 15th where he referred to this meeting, the General added:
The moment is opportune. The capitalist governments speak at this moment in support of democracy and absolute respect for the sovereignty of other countries. We shall see if they mean what they say. The government has political control at this point in time and the nation is also at peace. There is solidarity between the government and the popular classes. I think that there will be very few opportunities as propitious as this one in Mexico, to become independent of imperialist capital, and by doing that my government will discharge the responsibility that the Revolution has imposed upon us.
There are countries that have lost their freedom through the indecision and the pusillanimity of their leaders.
On March 18th, 1938, in the evening, President Cardenas reported privately to some of his collaborators; among them he asked the Treasury Secretary, Eduardo Suarez, to present the Cabinet that very night, the expropriation measures against the oil companies. At 10:00 p.m., from the National Palace and in a nationwide radio declaration, the General announced to the people the measures he intended to take to expropriate the oil companies, and read a manifesto prepared in advance. The boldness of the gesture and the immediate explosion of popular support moved even his most rabid adversaries, and disconcerted the companies and the governments of Great Britain and the United States, as the chronicles of the day testify.
That very Friday, late at night, Cardenas wrote these few lines in his diary:
In the collective agreement concluded today at 8:00 p.m., I communicated to the Cabinet the law to expropriate the property of the oil companies because of their rebellious attitude, the decision having been approved by the Federal Executive.
At 8:00 p.m. I announced on the radio to the whole nation the steps taken by the government in defense of its sovereignty, restoring to the nation the control of its oil wealth, which imperialist capital has been exploiting to keep Mexico in a humiliating situation.
It was a Friday night. The General had earned a weekend treat. On Sunday he went away on a picnic at the Nevado de Toluca  with his wife Amalia Solorzano and some relatives and close friends. He remembers that his wife, Amalia, asked them not to talk about politics.
 PEMEX –Petroleos Mexicanos, Mexican State Oil Company.
[2 ] Ejidos–village lands held in the traditional Indian system of land tenure that combines communal ownership with individual use.
 Telefonos de Mexico–The national, formerly state owned, telephone company.
 Pidiregas—Division in charge of long-term productive infrastructure projects, an important component of Petróleos Mexicanos and its subsidiary entities, capital expenditures.
 La Quina–This was the nickname given to Joaquín Hernández Galicia who was at one time, the very powerful leader of Pemex’s trade union.
 Charros–Mexican cowboys.
 PAN—National Action Party—The party in power.
 Los Pinos–Official presidential residence.
 Nevado de Toluca–An extinct volcano in the outskirts of Toluca city.
Adolfo Gilly was born in Buenos Aires, Argentina, in 1928 and is now a Professor of History and Political Science at the Faculty of Political and Social Sciences of the National Autonomous University of Mexico (UNAM). He is also a member of the Editorial Committee of SIN PERMISO [http://www.sinpermiso.info/]
* Ernesto Paramo and Machetera are members of Tlaxcala [www.Tlaxcala.es] the world network of translators for linguistic diversity
Adolfo Gilly was born in Buenos Aires, Argentina, in 1928 and is now a Professor of History and Political Science at the Faculty of Political and Social Sciences of the National Autonomous University of Mexico (UNAM). He writes for the newspaper La Jornada, on globalization and the Zapatista movement in Chiapas. Dr. Gilly has written numerous books on the history and politics of Mexico and Latin America. Among them: Revolutionary Horizons: Past and Present in Bolivian Politics; Mexican Revolution: A People’s History; Historia a Contrapelo: una Constellation; La Revolution Interrumpida; Chiapas: la Razon Ardiente; El Siglo del Relampago: Siete Ensayos Sobre el Siglo XX; Mexico, el Poder, el Dinero y la Sangre; Por Todos los Caminos: Escritos Sobre America Latina, 1956-1982.
He presently lives in Mexico City.
Gilly is known in the academic world as one of Mexico’s most widely read historians. He is considered to be a Marxist intellectual with socialist tendencies and for some years he has been a member of the Revolutionary Democratic Party [PRD]. He has collaborated at several meetings with Subcommandante Marcos. From 1997 to 1999 Profesor Gilly acted as an adviser to Cuauhtemoc Cardenas, then Mexico City’s Mayor, .
In 1966, Gilly was imprisoned for his participation in the UNAM’s general strike and was transferred to the infamous Lecumberri prison (now the National General Archive) where he was sentenced to six years. Due to the clear constitutional violations in his trial, Gilly became a political prisoner. The original version of his book La Revolucion Interrumpida was written between 1966 and 1971 (the first five years in Lecumberri prison). He was freed in March, 1972 by the Supreme Court of Justice after six years of campaigning. The freedom of Gilly was largely due to the political pressure applied by his family, friends, academics, students, analysts and political activists who finally forced the Supreme Court to free him.