Mexico’s Ruling Party Rebuffs Effort to Sell Off Pemex Plants

A surprise rebellion by Mexico’s ruling party appears to have dealt a strong setback to one of President Ernesto Zedillo’s most ambitious economic reforms: the privatization of part of the state-owned oil giant, Pemex.

Delegates of the ruling Institutional Revolutionary Party approved a motion during their weekend convention to defend Mexico’s oil and its byproducts as “property of the nation,” a move seen as further delaying--or even dooming--privatization of the nation’s petrochemical plants.

Zedillo’s government had hoped to unload its 61 petrochemical plants to raise billions of dollars and allow Pemex to focus on its most profitable operations: exploring and drilling for oil. Several U.S. companies were among those interested in buying.

But the petrochemical sale has proved the most controversial in Mexico’s decade-long privatization of hundreds of firms, from the telephone company to nightclubs. Seized from U.S. and British companies in 1938 amid a burst of patriotic fervor, the oil industry is still seen as a symbol of Mexico’s independence.

Officials of the Zedillo administration said this week that they hoped to still go ahead with the petrochemical sale. But at least one would-be foreign investor voiced doubts that its deal would ever go through, and some analysts pronounced the privatization over.

“I think it’s dead,” said Federico Estevez, a prominent political scientist. “They’ve told Mr. Zedillo what we all knew all along, that party resistance was . . . in large measure responsible for stopping progress on selling the petrochemicals.”

Even Jorge Eduardo Navarrete, the energy subsecretary, acknowledged that authorities would have to “reconsider” how to achieve “a globally competitive petrochemical industry in Mexico.”

“We don’t intend to ignore these demonstrations of political opinion by Mexicans and their organizations,” he said.

The PRI’s rebuff of the petrochemical privatization came during a convention in which the party also spoke out against the U.S.-educated technocrats who have spearheaded Mexico’s free-market reforms of recent years.

But analysts noted there were few steps taken against other specific elements of Zedillo’s free-market economic program, and little likelihood the strong central government in Mexico City would change its course.

The criticism of the free-marketeers--dubbed “computer boys”--appeared to stem from frustration about the country’s severe recession and PRI electoral losses, rather than from a sharp change in ideology.

But the sell-off of Pemex’s petrochemicals, long a touchy subject, is another matter.

Some analysts said announcements of the privatization’s demise were exaggerated. But the PRI vote was likely to add further delays to a process that has already frustrated U.S. and foreign investors.

“We’ve been waiting since February for additional information,” complained Paula Norton, a spokeswoman for Terra Industries Inc. of Sioux City, Iowa. The company had submitted a bid for the Cosoleacaque petrochemical complex, the first put on the block. Pemex had initially predicted that the first group of privatizations would be concluded by mid-1996.

“The longer we wait, the less likely it seems” the plant will be sold, Norton said. Terra, she added, has begun looking elsewhere to make investments.

After Mexico plunged into a severe recession in 1994, the government announced a wave of privatizations, involving railroads, airports, ports and the energy sector.

Southern California utilities are among U.S. firms bidding to distribute natural gas and run power plants for energy-hungry Mexico, especially in nearby Baja California.

Those projects haven’t faced the kind of opposition generated by the Pemex project--so far. But George Baker, who runs a gas and oil consulting firm in Oakland, said the PRI vote could produce complications.

In particular, he said, critics could try to block the sale of Pemex pipelines to private companies that are planning to distribute natural gas. PRI delegates at Saturday’s meeting called for Pemex to maintain control of its assets.

“That’s kind of a time bomb,” he said.

Since the government announced the petrochemical privatizations last year, oil company workers and left-wing parties have held noisy demonstrations. But the PRI had mainly stood behind Zedillo.

Going into last weekend’s convention, party leaders had inserted a bland statement about the oil industry in their platform. But oil union workers--long a pillar of the PRI--condemned the petrochemical privatization to ringing applause. Delegates promptly heeded their suggestion to toughen the language and ratify the party’s “historic commitment” to defend state ownership of the oil industry.

Raymundo Riva Palacio, a political analyst, said the PRI vote could be merely a negotiating tactic. In exchange for a bigger role in the government, he said, PRI critics could drop their opposition to the privatization.

But several analysts said Zedillo would probably have to put off the petrochemical privatizations until after next summer’s congressional elections, seen as a tough test for the PRI, which has been in power for six decades.