Friday, June 06, 2008

The Wonders of Corrupt, Socialist Economies...

The price of crude oil is soaring on international markets - up to $139 per barrel as of today. This is a incredible boon for oil producing nations, and indeed the nations of OPEC are drawing in record profits. But not every oil producing country is making a fortune.

Call it the case of the missing $3 billion.

The price of oil keeps climbing and Mexico exports oil. When that happens the government should earn extra money from the state oil monopoly, Pemex. But this year - so far at least - the government says there is no oil windfall money to hand out.

The recent announcement by the Finance Ministry got the opposition up in arms. Politicians declared that the technocrats at the ministry were manipulating the numbers and demanded an explanation.

The spat over the missing oil windfall is about more than government largesse, although that is certainly part of the issue. Under the law, a percentage of extra money from high oil prices is distributed to state governors to spend on public works. Opposition parties govern most of Mexico's 31 states as well as Mexico City.

Of course, as with everything in Mexico, Pemex's problems are rooted in the corrupt government that runs it.

At the heart of President Felipe Calderón's proposal is the argument that the oil company does not have the billions it needs to find, pump and refine more oil. The government uses Pemex to finance about 40 percent of its budget, leaving the company short of money to invest.

The missing windfall is evidence of Pemex's problems. It is a product of sagging exports, increasing fuel imports and the cost of subsidizing Mexico's below-market gasoline prices, according to the Finance Ministry.

Many outside analysts accept the government's explanation. "The numbers are quite clear," said Carlos Elizondo Mayer, a political analyst at CIDE, a Mexico City research firm.

The leftist opposition labor party refuses to believe the government's numbers, of course, if only because their party isn't in power.

The left-wing opposition argues that Calderón's proposal, which would streamline procedures for outside contractors and reward them for finding new oil, is a disguised attempt to privatize Pemex. Part of the left's argument is that the government is manipulating the figures to make Pemex look worse than it is to strengthen the case for private investment.

A former presidential candidate, Andrés Manuel López Obrador, who has never recognized his 2006 loss to Calderón, has led public protests against the energy bill, demonstrations that have given his movement renewed vigor.

López Obrador said this week at a rally that the missing windfall was a lie. He demanded that the government account for what he said was $20 billion in excess oil revenue, money he argued could go to rebuilding Pemex.

Rogelio Ramírez de la O, an economist who has advised López Obrador on energy, said that the government's accounting was correct under the law but that it was not transparent. The result has been to create suspicions among opposition legislators.

"The Finance Ministry has taken the role with Congress of an accountant who is annoying the client with technicalities," he said.

The ministry has been working to explain the missing money, but has yet to convince everyone.

"The deficit this year is totally atypical under the scenario of record oil prices," said the Mexico City finance secretary, Mario Delgado, announcing Wednesday that he asked the head of Pemex for an explanation on behalf of other state finance secretaries.

The reason that Pemex isn't reaping a fortune, despite the heady market for oil, is actually clear: the company's oil production is falling and costs are rising. But this is too simple and answer for the politicians that want to run everything.

Each year, the Mexican Congress estimates how much the government will earn from oil by estimating the price Pemex will get for each barrel, how much it will produce and how much it will export.

The windfall is calculated based in part on what Pemex earns over that estimate.

In the first quarter, the price for Mexican oil averaged 40 percent more than the budget's estimate, a jump that should have delivered an extra $3 billion to the Treasury. But declining production meant that Pemex exported almost 12 percent less crude than Congress estimated when it passed the budget last year.

At the same time, gasoline imports spiked 39 percent because of higher volumes and prices than legislators estimated. A strong peso hurt, too, because Mexico received less in peso terms for its dollar-denominated oil sales.

The result, the Finance Ministry said, was a shortfall of about $800 million.

Miguel Messmacher, a top Finance Ministry official, said that the formula, which has not changed this year, used to calculate the windfall was confusing.

"The mechanisms are complex," he said. "But they are made with the idea that the windfall isn't distributed unless you have it."

This year, for the first time, the costs of subsidizing controlled gasoline prices have shown up very significantly in the books - at a cost of about $5 billion to the government in the first quarter.

Is it any wonder why millions of Mexicans voluntarily flee their own nation every year?


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