A couple of years ago I created a series of videos for Marginal Revolution University on Mexican Economic Development. I learned a lot about the unbelievable problems of the national oil industry in Mexico (Pemex) while doing so and created three videos on the topic (The Problems of Pemex, An Overview of Pemex, and Pemex’s Poor Performance). But even I was surprised to read about the scope of corruption and fraud in Pemex in a recent article by Reuters called “Mexico looks the other way as contractors fleece oil giant Pemex.”
The article is amazing and I recommend you read the whole thing to really get an idea of what has been going on. Here are some of the gems though:
1. “Pemex paid $9 million in 2011 to have an oil rig towed halfway round the world, from the United Arab Emirates to the Gulf of Mexico. The rig had the wrong equipment for the assignment, according to a report by Mexican congressional auditors. And the tow job itself was a fiction: The rig didn’t need to be moved. It was already in the Gulf of Mexico.” I love how the audit buries the lede by talking about the wrong equipment first, and then getting to the fact that there was no actual towing.
2. “Reuters identified more than 100 Pemex contracts signed between 2003 and 2012, worth $11.7 billion, that were cited as having serious problems by the Federal Audit Office of the lower house of the Mexican Congress. The allegations ranged from overcharging for shoddy work to outright fraud. Pemex almost always disregards these warnings. From 2008 to 2012, the most recent year of available data, the congressional auditors issued 274 recommendations that Pemex take serious action over contract irregularities – either press criminal charges, discipline employees or claw back money. The company issued responses to 268 of the cases. In only three of them was action taken. The result: A handful of employees received suspensions. Pemex’s internal control office dismissed 157 of the cases. As of last month, 108 were unresolved.”
3. “The SFP investigators at Pemex, meanwhile, are reluctant to pursue cases against the officials they are supposed to regulate. These internal investigators technically are independent of Pemex, as employees of a separate federal agency. But the federal agents – mainly lawyers and accountants – are effectively part of the oil giant. They are paid by Pemex and work in Pemex offices.” How to fail at Anti-Corruption 101.
The title of this blog post comes from one Manuel Sanchez, a Pemex official who approved selling a Brazilian company Unigel a chemical at a very discounted rate for many years, so discounted that it is estimated that Pemex lost “$24.2 million from 2009 to 2011.” And what does Mr. Sanchez, who is now the chief of Pemex Petrochemicals, have to say for himself: “Not everything is perfect, perfect, perfect. We realized that there are things to improve.” So true but so unlikely to happen, especially with Sanchez at the helm.