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Pemex chief hails Mexico as ‘new Mideast’

Pemex's Chief Executive Officer, Emilio Lozoya, delivers a speech©AFP

Emilio Lozoya admits he has his work cut out licking Pemex into shape

Emilio Lozoya jumps to his feet and marches over to a wall cabinet in his 44th floor office at Pemex’s headquarters in Mexico City.

“You see this?” the fresh-faced 38-year-old Harvard graduate, asks, holding up a glass vial with a pale liquid inside. “That’s pure gold. It’s as good as it gets.”



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Mr Lozoya’s optimism is infectious as he contemplates the high-grade oil sample which he believes is emblematic of Mexico’s future. To ram home the point, he produces an investment bank report which describes the hemisphere as the world’s “new Middle East”.

Shale gas production north of the border has already slashed energy costs in the US, setting the stage for a manufacturing resurgence few imagined only five years ago. Mr Lozoya believes the same is possible in Mexico.

The country is already known for its manufacturing prowess – it is the world’s largest producer of flat screen television, and manufactured exports topped $300bn last year. But Mexico can do better still, he believes.

“You will have industrialisation in Mexico that didn’t exist before,” Mr Lozoya, chief executive of Pemex, the state-owned oil company, declares. “After all, we share the same geology as the USA.”

Yet getting this golden liquid out of Mexican ground is fraught with problems.

For one, ever since former president Lazaro Cardenas nationalised the sector in 1938, oil has been a politically charged issue in Latin America’s second-biggest economy. Every March 18, millions of children parade around their school court yards to celebrate the historic event.

Wrapped up in such national pride, Mexico has one of the most closed oil regimes in the world, and Pemex is constitutionally barred from entering into joint ventures and risk-sharing contracts with private companies.

Then there is the challenge of turning round Pemex itself, one of the most inefficient oil companies in the world. In 2004, the company pumped 3.4m barrels of oil a day and had 138,000 employees. Today, it produces less than 2.6m bpd and has 160,000 staff.

Experts say a particular problem is the operational autonomy of Pemex’s four divisions. Created 20 years ago with the aim of improving transparency, the structure has instead led to four separate Pemex’s, each with their own purchasing, administrative and legal centres – an unnecessary and expensive replication.

On the political front, Enrique Peña Nieto, the new president, has managed to get basic agreement from Mexico’s three main political parties, who have signed a so-called “Pact for Mexico”. Although details are vague, it represents cross-party recognition that change is needed.

“It is a contradiction in terms that Mexico, a major energy producer, now imports natural gas and gasoline,” says Mr Lozoya.

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As for Pemex’s internal problems, there is ground for optimism too. One is the appointment of Mr Lozoya, whose father was an energy minister. Unlike previous Pemex CEOs, his close relationship with the president is also a sign of Mr Peña Nieto’s determination to change the company.

Mr Lozoya takes pains to stress the depth of Pemex’s talent pool, but admits he has his work cut out licking the company into shape even though he seems to relish the challenge. “I wanted the job because execution is central to it,” says the former private equity financier.

Since he was appointed two months ago, the corporate turnround specialist has already replaced a third of top management. Rising stars at Pemex now find themselves in important positions. A former McKinsey consultant is working in operations. A former IMF official is in the finance department.

In addition, given that almost a fifth of Pemex’s staff are non-union members suggests that Mr Lozoya might be able to cut headcount without falling foul of the company’s huge and powerful union.

Even in a worst-case scenario where the reforms do not happen, Mr Lozoya says Pemex will manage to increase production to 3m bpd by the end of the administration in 2018. But he and the president have set their sights far higher than that.

He pulls out a map that shows one of two new gas pipelines that will bring cheap natural gas south from the US to feed Mexican industry and petrochemical development – especially of fertilisers.

“It is going to boost agriculture and heavy manufacturing, significantly,” he says. Then he adds, arching his eyebrows: “but most important of all, it is a two-way pipeline which will also allow us to send gas the other way.”