Change at Pemex: Shuffling deck chairs or deepening reform

This posting is a guest contribution by Jeremy Martin, director of the Institute of the Americas’ Energy Program . It was also published at MexBizNews, the website for Mexican business news.

President Calderon began the new legislative season and second half of his Sexenio with an impassioned Informe (Mexico’s State of the Union address). Most interesting, two weeks on, were his surprising comments aimed at the oil sector and Pemex.

Among what were cast as the ten most urgent reforms for Mexico in the Informe, President Calderon underscored the need to transform state enterprises. On the oil front, he called for a new, deep reform because “today a deep reform is not only the best option, but the only option.”

As we know now, the rhetoric was not empty and it ultimately proved a direct hit on the bull’s eye many perceived to have been placed on Pemex chief Jesus Reyes Heroles’ chest.

Comments by Energy Secretary Georgina Kessel openly questioning Pemex’s efforts to focus significant time and resources on the Chicontepec field just after the Informe proved another clear signal from the Los Pinos presidential residence that the verbiage in the Informe directed at oil and Pemex were not throw-away lines.

But it was the afternoon announcement on September 7th of a change at Pemex that proved the clearest signal of Calderon’s thoughts on what was meant by deep reform and transformation of state enterprise. President Calderon went before the cameras to announce a variety of changes in his administration, but the most thought provoking proved to be the replacement at the top of Pemex of Jesus Reyes Heroles with Juan Jose Suarez Coppel.

Suarez Coppel is no stranger inside or outside the halls at Pemex. For several years, including the period of fiscal reform at the company under Vicente Fox’s government, he served as CFO. In crude terms, he knows where the financial bodies are in the Pemex towers and surely can navigate the company’s bureaucracy, not to mention that of the financial structure in the country.

Indeed, once Suarez’s name was revealed, many felt a bit relieved by the nomination as the rumor mill had been cranking out many other names – and for industry followers most were illogical. This was, at least, someone who intimately knew the company and the brutal challenges its management presents.

There is, as some critics were quick to point out, the knock on Suarez for his association in his most recent job with poorly conceived – and highly complex – derivative trading deals. As Cemex’s recent financial travails underscore this is not a minor point, but surely is not something that can or will be remotely repeated at Pemex.

In the end, the change at the top of the Pemex is simultaneously unfortunate and an opening.

Unfortunate, because Jesus Reyes Heroles was not individually to blame for Pemex’s continued woes, nor was he really afforded the space to work under the new structure being outlined for the company. But he served at the pleasure of the president, and President Calderon was clearly not pleased with the increasingly grim reality as Pemex had to scale down its 2009 oil production target after another unproductive first half.

The opening comes from what is for better or worse a clean slate created by replacing the CEO; this point should not be completely discarded, particularly when it comes to how the company will focus its resources and efforts particularly in accordance with the aforementioned 2008 energy reform measures.

Let’s give Juan Jose Suarez Coppel some time to reveal his intentions and focus – and to better gauge the degree of support he receives from the Energy Secretariat and Los Pinos. Indeed, any change at the top of a monolithic organization such as Pemex deserves time before passing final judgment.

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One Response to Change at Pemex: Shuffling deck chairs or deepening reform

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