CHALLENGES IN PETROLEUM POLICY FOR THE NEXT PRESIDENT OF MEXICO

George Baker
Baker & Associates
Oakland, Calif

The next president of Mexico, who will take office on Dec. 1, 1994, faces the challenge of constructing a new legal, commercial, and philosophical paradigm for the oil and gas industry in Mexico.

As this review of petroleum policies and measures of the past 5 years will show, the existing paradigm has worked only imperfectly, and there are a number of items of unfinished business that the new administration must address.

Leaving aside the basic question of the policy framework for oil production (OGJ, Mar. 1, 1993, p. 42), the new paradigm must also address six central needs:

• To strengthen Pemex's image in Mexico as an environmentally sensitive and safety conscious producer, refiner, and distributor of petroleum products.

• To reverse the declining morale in Pemex in middle management as well as blue collar ranks.

• To increase domestic supply of unleaded gasoline and reduce the production and burning of high sulfur fuel oil.

• To set forth a workable framework for natural gas transmission that complements the 1992 regulations that permit private investments in electric power generation.

• To increase domestic natural gas production and consumption for industry, residential, and even transportation uses for environmental reasons.

• To face up to the fact that Mexico needs to set forth a regulatory framework that is attractive to commercial lenders on a nonrecourse, project financing basis.

First, we must review recent developments and trends.

UPSTREAM DEVELOPMENTS, TRENDS

Pemex's production program for 1993 remained much as it was in 1992, with the bulk of oil production of 2.67 million b/d coming from the fields in Campeche Sound mostly from the Cantarell complex and the bulk of gas production corresponding to the onshore Reforma fields (Table 1).

Of the oil produced, about 52% was fight oil 32 or higher gravity of Isthmus and Olmeca blends and the remainder Maya grade about 22 gravity.

As for Mexican natural gas, Pemex continues to be concerned about domestic natural gas supply. The thesis advanced by the Canadian government in October 1991 that Mexico in the coming 10 years or so could become a major gas exporter to the U.S. now seems all but forgotten.

On the contrary, Pemex is taking a new look at its gas reserves in order to maintain production at about 3.5 bcfd. Pemex is aware that, with the passage of the North American Free Trade Agreement (Nafta), it will be required to give more attention to providing natural gas service to the U.S. border region, for reasons of environmental as well as industrial policy.

Around August 1993 Pemex went to about a dozen U.S. operating companies, including majors and independents, asking them to submit proposals for studies of selected Mexican gas basins. About half responded, and action still was pending at OGJ presstime.

Meanwhile, in mid 1993, the Canadian Energy Research Institute (CERI), Calgary, began an interdisciplinary study of North American gas supply/demand, trade patterns, and prices. The project is funded by about 30 U.S. and Canadian companies and has received support from Mexican organizations. Another, more limited study by the Border Research Institute at Las Cruces, N.M., concerns natural gas supply as a factor affecting economic development along the New Mexico Chihuahua border.

As one unexpected outcome of this renewed interest in Mexican natural gas, in mid January 1994 a conference jointly sponsored by the American Gas Association, Canadian Gas Association, and Mexican Gas Association was to be held in Mexico City. One of the items on the agenda is the outlook for natural gas vehicles in Mexico City and Monterrey. In August 1993, the Mexican Commerce Ministry announced that the consumer price of compressed natural gas could be set by the vender an unprecedented instance for Mexico in which market forces are allowed to determine the final price of an energy product.

New upstream trends include possible Pemex investments outside Mexico.

Pemex, through subsidiary Mexpetrol, is planning to participate with a little known firm, Underwater Investments Inc. (UII), founded by former Getty Oil Co. explorationists, in developing a number of oil fields in Guatemala. In September, rumors were circulating in Mexico that Mexpetrol was discussing with Texaco Inc. a joint Guatemalan project. According to a Pemex press release of Nov. 29, 1993, the size of the project is estimated at $30 million, with Pemex's share in association with Mexican export bank Bancomext at $10 million.

UII invited Pemex's collaboration after having obtained oil concessions from another U.S. company. The joint venture capitalizes on Pemex's access to low cost capital and interest in extending its knowledge of the petroleum geology of the Mexico Guatemalan border region, where it disclosed in 1991 discovery of Ocosingo field.

Mexpetrol is also considering investment projects as diverse as the construction of a gas pipeline from Bolivia to Brazil and the revamp of a refinery in Yaroslav, Russia.

TRADE ISSUES

During the first 7 months of 1993, Pemex exported 1.334 million b/d of crude oil, about 64% of that to the U.S., 15.3% to Spain, 4.9% to the Far East, and 15.8% to other markets (Table 2).

The fall of oil prices in November-December 1993 pushed the spot price of Maya oil to less than $9/bbl, and the overall revenue picture for Pemex in 1994 is not as bright as the country needs it to be.

Gasoline and natural gas imports, which seemed to be on a sharp upward spiral in early 1993, took a sharp dive late in the year. Where gasoline imports were about 100,000 b/d in January, they fell to about 50,000 by yearend.

Natural gas imports, which exceeded 300 MMcfd in first quarter 1993, had dropped precipitously to about 70 MMcfd by August. On Aug. 23, Pemex announced a 14 month contract with Amoco Energy Trading Corp. for purchase of 35 MMcfd of natural gas. By mid November, however, Pemex had opened up 40,000 50,000 b/d of shut in oil production probably in the Reforma fields which unexpectedly put Pemex in a surplus gas position. Accordingly, by yearend Mexico had become a net exporter of gas to the U.S. (OGJ, Dec. 20, 1993, Newsletter).

For the coming few years Pemex anticipates cycles of imports and exports at about 100 MMcfd.

In November 1993 rumors in Mexico were adrift that Pemex was once again in discussion with Cuban authorities about a possible joint venture involving Cuba's largely unused Cienfuegos refinery. Had Nafta not passed the U.S. Congress, the incentive in Mexico to strike a nose thumbing deal with Cuba certainly would have increased. With Nafta in hand, the likelihood of such a venture has all but disappeared.

ENVIRONMENTAL GASOLINE

Pemex continues its efforts to upgrade the supply of high quality gasoline and diesel in the Valley of Mexico, where more than one in four Mexicans lives.

The Metropolitan Commission on Environmental Protection for the Valley of Mexico in December 1992 set the following maximums for gasoline consumed in Mexico City and environs: aromatics 30 vol %, olefins 15 vol %, benzene 2 vol %, and vapor pressure 8.5 psi, among others specifications (Table 3)

In 1992 government pricing policies managed to keep overall gasoline demand largely flat. Pemex is still short at least one 250,000 b/d refinery configured for unleaded gasoline. Pemex's 105,000 b/d refinery in Mexico City was closed in 1990. In mid 1993 Pemex concluded its negotiations with Shell U.S.A. for a joint venture that would refurbish its technologically outdated refinery at Deer Park, near Houston. Part of Pemex's payout will be in the form of 45,000 b/d of unleaded gasoline.

At least one U.S. company has proposed investments in coking facilities for Pemex refineries, to assist in upgrading high sulfur, high metals content Maya crude. But to date the path to a commercial deal has not been found.

Pemex, meanwhile, is contemplating investing in its own coker facility, a dubious undertaking in view of falling oil prices, which cost Pemex $475 million/year for each $1/bbl decline. An unhappy result of the lack of coking capacity from an environmental viewpoint is that the Federal Power Utility (CFE) continues to be Pemex's captive market for its low grade fuel oil.

ENVIRONMENTAL, INDUSTRIAL SAFETY

Mexican society very much needs to improve the management of the federally controlled transmission, storage, and distribution of petroleum products.

The still unresolved disaster at Guadalajara amply illustrates this complex regulatory and management problem. On Apr. 21 22, 1992, residents of a lower class neighborhood in the Reforma district of Guadalajara complained to city authorities of a strong odor of gasoline in their district. Inspections were made in the afternoon of the 21st with the finding that there was a virtual 100% probability of an explosion. The local newspaper Siglo XXI issued a report on the problem on that date. No evacuations, however, were ordered. In retrospect, Guadalajara residents recall that gasoline leaks had been common for decades, and not one public official considered he had the authority to order an evacuation. In resignation, residents say that the resulting explosion and loss of fife and property was an but inevitable.

Over the course of about 2 hr the morning of Apr. 22, about five explosions ripped through a section of downtown Guadalajara, affecting fifty blocks of residential and commercial structures. The force of the explosion was sufficient to toss parked vehicles onto the tops of houses. The explosion was caused as a result of the combustion of large quantities of gasoline vapors in city sewage lines. About 200 bodies were identified, and an additional 600 or more persons remain unaccounted for.

One hypothesis widely believed in Guadalajara is that gasoline had been dumped by black market retailers who sought to avoid detection by a Mexico City audit team. A year and a half later, Mexican courts have yet to issue a finding of responsibility for the accident that caused the largest loss of life and property during the Salinas administration. A tour of the affected area on Nov. 27, 1993, showed the streets had all been entirely rebuilt, with saplings planted in the space between the street and the sidewalk.

Three notes, however, were discordant. One was the large, absolute size of the affected area: about 50 75 yards on each side of the street were cleared, leaving vacant lots. The second unexpected finding was that only a handful of the hundreds of destroyed or damaged structures were under construction, reflecting in part the traditional lack of homeowner's insurance in Mexico and in part the failure to date of the government to provide funds to rebuild the homes and stores at their replacement values. The third jarring note was the total absence of any signs or billboards that indicated this area was the site of the disaster or that any governmental, professional, or charitable agency was providing relief to the victims.

Immediately following this disaster, the blame for it was placed on a small, local chemical company, but this hypothesis was soon discarded. As alarm spread to metropolitan areas throughout the country, the government shortly hired a number of Mexican and foreign firms such as Protexa, Bechtel, Brown & Root, and Southern California Gas Co. to carry out environmental and safety audits of pipelines in a number of urban areas. Commonly encountered problems included the lack of precise information regarding location of pipelines as well as illegal settlements on Pemex rights-of-way.

In addition, Pemex has contracted with a number of local environmental firms, among them Bio Solutions Systems, the Mexico distributor for Belgian technology for water treatment. In a closely watched application of the technology, Bio Solutions is using bioremediation technology to treat 60,000 bbl of hydrocarbon contaminated water that had been used to clean two 5 million 1. Pemex storage tanks at the former La Nogalera storage plant at Guadalajara. The plant, which had supplied the city with petroleum products, is located about 1 km from the Apr. 22 explosion site. Many Guadalajara observers believe the plant also was in danger of exploding on that date. As of early December 1993, the plant was 90% dismantled and was being moved outside the city limits for environmental and public safety reasons.

Within a day of the blasts, the president of Mexico visited the site and ordered Pemex to make a meaningful response to this crisis. The counterintuitive reply by Pemex, however, was to propose a corporate reorganization that divided the integrated oil agency into four operating units, one for E&P, another for refining, a third for basic petrochemicals and natural gas transmission, and a fourth for secondary - to be privatized petrochemicals (Fig. 1). The surprising feature of this response, approved by the Mexican Congress in early July 1992, was that it did not address any issue of public or environmental safety.

However, Pemex in May June 1993 conducted several industrial disaster simulation drills. One in May simulated a fire in an industrial plant, and one in June simulated a gas pipeline rupture.

NATURAL GAS DISTRIBUTION

Prior to the Guadalajara explosion, the Mexican government had put three local natural gas distribution companies (LDCs) up for sale: one each in Mexico City, Queretaro, and Monterrey.

After the explosion, all three were removed from the auction block, pending an inspection of the safety of their lines and related measures of risk. On May 19, 1993, Pemex announced a technical collaboration agreement with Gaz de France, the purpose of which was the exchange of information regarding natural gas transmission and distribution as well as in the training of managers and the development of control systems.

A natural site for new LDCs is in Baja California, where, for 15 years, local authorities have asked for natural gas service. Since 1991 Pemex has sat on the fence as to whether a northern route from California or an eastern route from Arizona would be preferable. Pemex is known to favor the latter because it avoids the perceived risk of regulatory interference by the California Public Utilities Commission and California Energy Commission although the two agencies face consolidation and elimination, respectively (OGJ, Dec. 13, 1993, Newsletter).

Unfortunately for local industry, Baja remains in the hands of liquid petroleum gas distributors who effectively have a near monopoly on industrial fuel in the state. A collateral environmental risk is the products terminal at Rosarito, south of Tijuana, which is supplied mainly by tankers and barges that come up from Pemex's Salina Cruz refinery, 1,500 miles south as well as from foreign sources. Some observers believe an environmental accident, onshore or offshore, is waiting to happen at Rosarito.

U.S. industry observers believe the key to natural gas distribution in Mexico is a radical overhaul of pipeline policies.

PEMEX MORALE PROBLEMS

Management labor relations in Pemex continue to deteriorate, at least from the perspective of labor.

A profound impact was caused by the break up of the oil union during 1989 92. On Jan. 10, 1989, army units assaulted the home of the controversial and once feared head of Pemex's OH Union in Ciudad Madero, a suburb of Tampico. The night camouflaged army commandos seized and imprisoned Joaquin Hernandez Galicia, known as "La Quina" by the press and "don Joaquin" by his friends. The government explained its actions by subsequently instigating criminal proceedings. The government alleged that a drug enforcement agent had been killed in the line of duty on a matter unrelated to drugs at La Quina's house in Ciudad Madero on Jan. 10. However, testimony put the agent several hundred miles away on assignment in Juarez on Jan. 8. In addition, the government accused La Quina of possession of illegal arms.

But the case against Jose Cruz Contreras, who was named in all of the signed confessions as having illegally imported the arms in question, was regarded by U.S. Judge William M. Mallet in McAllen, Tex., as so lacking in evidence that on July 24, 1992, he forma]IN, denied the Mexican government's request for extradition.

Nevertheless, La Quina and several persons arrested with him, including his gardener of 2 months and an unemployed roughneck looking for work, were convicted of murder, resisting arrest, and illegal gun possession and sentenced to more than 30 years in prison. The courts, regarded as vulnerable to influence from the executive branch, threw out La Quina's appeal in 1992. La Quina, in his early seventies, has one more chance to gain his freedom by an appeal mechanism known as an "amparo" before the Mexican Supreme Court. Given the evident bias of the executive and judicial branches against his case, the timing of La Quina's appeal will likely have to wait until the current administration leaves office in November 1994.

With La Quina out of the way, Pemex management has been able to downsize its payroll by tens of thousands of workers. Whereas in 1988 the union controlled 212,000 Pemex jobs, in 1993 that control had been reduced by two thirds. The union itself has been turned into a company union a "white union" in Mexican terminology with company yes men at its head.

A tradition in Pemex is that no one leaves the building until the department head has caped it a day, a custom that made an Arthur D. Little consultant contracted by Pemex's petrochemicals unit remark in 1991 that he had never seen longer hours at a government or industrial office: "At 10:00 at night there are not two are three people at work in a department, but 60 or 70." With employment down, the work schedule at Pemex requires many managers, engineers, and geologists to work Saturdays and Sundays.

Perhaps the most elusive dimension of Pemex's morale problem, however, is the lack of managerial, financial, and legal accountability.

"This is the hole in the hull of Pemex's Titanic," observed one U.S. company official in Mexico. "Everything else is rearranging the deck chairs."

NAFTA AND THE PRESIDENCY

The approval of Nafta by the U.S. Congress in November 1993 put an end to the closed door presidential selection process in Mexico that had been taking place with increasing intensity for the previous year.

On Nov. 28, 1993, the government announced the name of the president-designate of Mexico, Sen. Luis Donaldo Colosio. Sen. Colosio, who is from the northern state of Sonora, is well known in rural areas of Mexico because of his role since 1991 as head of the Rural Development Ministry, known as Sedesol.

In stepping down as head of Sedesol, Sen. Colosio was replaced by Carlos Rojas, brother of the man who has been head of Pemex since 1987. Colosio's views on upstream or downstream issues in the oil industry are not known, although he is believed to be interested in exploring options beyond those contemplated by the Salinas administration.

One such option, which called for common carrier pipeline regulations like those in the U.S. and Canada and was momentarily discussed in the Mexico press last year (OGJ, Aug. 16, 1993, p. 26), was later disavowed by the Mexican government and received no further public discussion.

Still pending in Mexico is the adoption of natural gas regulations that will be needed to complement the electric power regulations in ways that add to the security of bankers about loans to the energy sector.

PROJECT FINANCING

On Nov. 4, 1990, Presidents George Bush and Carlos Salinas, meeting in Monterrey, agreed in principle that U.S. ExIm Bank financing for Pemex projects would be made available to Pemex on the scale of $5.6 billion.

These loan guarantees sat unused for several years, however, because U.S. commercial lenders would not agree to the rates and terms that Pemex and the Mexican Finance Ministry insisted upon.

In 1991 Pemex conceived of using the financial strategy known as "bondling," a technique that would permit Pemex to issue bonds with the ExIm Bank loan guarantees as collateral and then buy goods and services for upstream projects. Unfortunately, neither the ExIm Bank nor the U.S. Securities and Exchange Commission had any, experience with such financing ideas, and the strategy seemed headed nowhere. Finally, however, on Aug. 6, 1993, Pemex announced that an agreement had been reached with the U.S. ExIm Bank that would permit Pemex to place financial instruments in the U.S. market to a value of as much as $348 million for the purpose of financing exploration and production in Campeche Sound. The collateral for the instruments would be the loan guarantees of the ExIm Bank itself.

In late 1992 the Mexican government decided on a second new strategy for external financing. In place of sovereign debt guarantees and traditional corporate financing that result in additional on balance sheet debt, the government announced it would seek, wherever possible, private funds for new projects on a self financing, nonrecourse basis. Project financing schemes are being considered for pipelines, electric power plants (public and private), and even a refinery (OGJ, Dec. 27, 1993, Newsletter).

On May 31, 1993, the Energy Ministry issued the long awaited regulations for private investment in electric power generation. Here, for the first time, private investors were invited to participate in commercial electric power generation.

Commercial lenders, in turn, are also invited to share risk and potential returns in financing stand alone projects in Mexico's public sector. As of December 1993, the only stand alone project in the energy sector to receive commercial lending on a nonrecourse basis has been the joint venture agreement between Shell U.S.A. and Pemex. By the terms of the project Pemex E&P obligates itself to provide crude to a jointly owned and upgraded refinery at Deer Park, Tex., under a long term contract. Another Pemex unit also obligates itself to offtake unleaded gasoline from the refinery.

With a guaranteed source of crude oil and a guaranteed source of export revenue (in dollars), the Houston area refinery is subject to U.S. common law. As such, it is a viable stand alone entity for the purpose of project financing. In Mexico, where there are no sovereign guarantees for financing public utilities, developers and lenders alike will need project specific assistance in assessing and managing country and regulatory risks.

The pullout of Mission Energy from the coal fired electric power plant known as Carbon U, made public on Oct. 11, 1993, was a major setback for the Mexican government's plan to attract private capital for electric power generation. Developers, lenders, and regulators all had hoped that the invisible chemistry of trust, risk management and legal obligation would be shown to be in place in the Carbon H project. The collapse of that project, therefore, undermined the credibility of Mexico as a host country for investments and nonrecourse financing in private electric power generation.

REGULATORY RISK

Perhaps the main difficulty facing developers and lenders is political or regulatory risk.

In the U.S. there is a common law tradition that gives great (although not perfect) predictability to the future decision.making of the courts and regulatory bodies and agencies in case something goes wrong that makes it difficult or impossible for the developer to repay his debt to the lender. In Mexico, which is governed by civil law, no such predictability exists for these reasons:

• There is no public utility commission that serves as a quasipublic forum at which prices and rules can be discussed with governmental authorities.

• Pemex acts as a supplier as well as a regulatory agency for example, in setting gas pipeline transmission prices for importers of gas.

• There is no independence of regulatory officials all serve at the pleasure of the President of Mexico or his substitute.

With regulatory predictability, lenders can feel confident that, although the rules may change, the basic economic viability of a project that is funded today will not be put in jeopardy by public officials in the future. As the collapse of the negotiations regarding Carbon II in October 1993 poignantly showed, the level of trust, what Mexicans call confianza, has not yet been achieved.

Some Pemex units are still struggling to understand the difference between a performance guarantee and a loan guarantee, Bankers are asking Pemex to give a performance guarantee that it will supply crude to the Deer Park refinery and take specified volumes of unleaded gasoline, with the understanding that failure to do so by Pemex would result in a penalty. Down in the trenches, some Pemex operating officials tend to regard the penalty concept with skepticism, as if it were a loan guarantee. "Why shouldn't Pemex just go out and borrow the money, instead of giving a loan guarantee to someone else?" they ask.

PARADOX OF FINANCIAL STRATEGY

The paradox in the financial strategy of Mexico's government is this: it seeks to avoid future sovereign debt wherever possible; at the same time, for political reasons, it chooses to bypass the principal mechanism for investment financing in the off and gas sector, namely, 100% developer financing for upstream projects.

In the electric sector, a second paradox exists: for political reasons the government does not authorize OPIC insurance, which protects against political risk, for U.S. investors; while, at the same time, the government limits itself to taking only tentative steps toward establishing a predictable regulatory framework that would protect developers and lenders against political risk. Short of such an effort, Mexico's attempt to get new financing for the energy sector will be put in jeopardy.

This view is not shared by Pemex's financial managers, who point to the successful bond placement program in 1993 (Fig. 2). Of eight bond offerings by Pemex, six were in currencies other than the U.S. dollar. On Nov. 10, 1993, for example, Pemex announced an offering of $100 million (Canadian) in the European market, on a term of 5 years, 3 months with a rate of 7.96%, only 195 basis points above the rate applicable to the Canadian government for a similar term. Pemex's bankers in this operation were Deutsche Bank and Citibank, and the funds will be used for oil exploration and development.

While the raising of possibly $1 billion by innovative financing schemes is a credit to Pemex's key financial managers such as Ernesto Marcos and Carlos Garcia Moreno, in the face of Pemex's needs for $20 billion in 5 years for a new refinery and new upstream capacity, it is barely a beginning. In the face of a $40 billion investment budget for the energy sector as a whole in the coming 10 years, $1 billion is spare change. Financing, then, remains a real issue in Mexico's energy sector, for electric power as well as for oil production, refining, and distribution.

NAFTA'S AMBIGUOUS PROMISE

Despite the desultory performance of U.S. Vice President AI Gore in his televised debate with industrialist Ross Perot during which it became apparent that the vice president's only knowledge of Mexico was from secondhand sources Nafta somehow passed the U.S. House of Representatives Nov. 17 by a vote of 234 200. In the following weeks it was also approved by the U.S. Senate and Mexican and Canadian legislative bodies.

It is hoped Nafta will spur much of the estimated $30 50 billion of Mexican expatriated capital to return to Mexico in the form of plants, equipment, and permanent jobs. It is further hoped Nafta approval in time will lead to lowering of interest rates applicable to investment projects in Mexico.

Meanwhile, the passage of Nafta has already led to a more conducive atmosphere in the banking community: investment projects that previously never would have been considered for funding are getting attention. Even the U.S. ExIm bank is breathing easier since taking the position that the signing of Nafta was the equivalent of the nonexpropriation treaty that it fruitlessly had sought with Mexico the previous 2 decades.

Formally, however, Nafta gave nothing new to the oil industry beyond the agreement that government procurement of goods and services for much of which Pemex and CFE are responsible will open gradually to U.S. and Canadian suppliers and contractors. Under Nafta, upstream investments remain the exclusive domain of the Mexican government. Nevertheless, the Mexican government is capable of changing its mind on investment policies in the energy sector, as the about face in electric power generation policy illustrates.

For this reason, U.S. and Canadian producers, refiners, and transmission companies currently the black sheep in Mexico - need to keep closely informed of policy developments, even if no investment opportunity is immediately visible.

CONCLUSIONS

Thanks to approval of Nafta, Mexico has again returned to its natural place at the table of U.S. policy debate, a place largely unoccupied since the signing of the treaty that formally ended the U.S.Mexican war on Feb. 2, 1848. The benefits from Nafta will not happen tomorrow or in 5 years: Nafta is a vision of change that will take place in the space of a generation.

Meanwhile, the next president of Mexico has a number of items of unfinished business to attend to in Mexico's investment and petroleum policies: The legal and regulatory frameworks for foreign investment need a thorough review, especially in the light of the government's desire for nonrecourse financing.

As of early 1994 it was not realistic to expect that such financing would be forthcoming from commercial lenders. Pemex needs a new refinery as well as new coking capacity for existing refineries. New investments in pipelines are needed in northwestern Baja California and southeastern Yucatan. The terms for the sale of the three government natural gas LDCs need to be published, and their privatization carried out. Pemex's morale problems, already serious before the coup d'etat against the Oil Union in January 1989, need attending to at once. The value of Pemex's public relations capital in the states and provinces plunged in the wake of the Guadalajara disaster, the ill will from which has not at all been softened by the delay of more than 1 years in determining the basic causes of the accident. Pemex has taken important steps in upgrading its gasoline service stations, but equally important items concern public safety, finance, regulatory predictability, upstream efficiency, and overall transparency of operations.

Neither the spirit of Nafta nor the economic and environmental goals of Mexico will be served by more of the status quo in these areas of public policy.

Finally, the next Mexican president needs to ask Pemex if its production and export capacity should rely so heavily on one oil producing complex, Cantarell. Perhaps in the course of this first generation of Nafta Mexico may again see the wisdom of having strategic partners in oil exploration, production, refining, storage, and transmission. The Exxon, Texaco, Chevron, and Mobil signs that a visitor now sees in Guadalajara need not have a business meaning in Mexico only in relation to the sale of lubricants.

Copyright 1994 Oil & Gas Journal. All Rights Reserved.