Massive layoffs at PEMEX

By Diana G. Landázuri
Special to The Citizen

Massive layoffs at PEMEX, the bloated Mexican oil monopoly, have already put thousands of top-level employees out of work this year, with even larger unionized worker layoffs looming on the horizon. What’s next for PEMEX and Mexico? Possible social chaos and a regional economic crisis in the oil-rich southeast – leading to greater immigration to the U.S. - and a strongly rumored privatization of PEMEX, allowing for direct U.S. oil investment for the first time since the 1930s.

PEMEX (Petróleos Mexicanos) has been a decentralized branch of the Mexican government...at least until now. Ever since the Mexican petroleum industry was nationalized in 1938, management of oil resources has never been clearly defined. PEMEX did not increase domestic refining capacity, nor did it foresee the increase in the demand for gasoline. It mismanaged pensions and perks, including periodical 40% “overtime” bonuses, directly deposited on workers’ bank accounts, and new cars every three years for management-level employees. The worst are “six-year” employees, who arrive, pilfer and leave in six-year cycles. As a result, PEMEX’s debt has reached $73.8 million, equivalent to nearly 95% of its total assets and putting its decentralized, nationalized status at risk.

In early 2004, PEMEX decided to restructure its workforce, bankrolled by the SHCP (Secretaría de Hacienda y Crédito Público) – the Mexican IRS – to lay off approximately 5,000 de confianza workers, technicians and specialists (literally, “trustworthy”, that is, non-unionized, management-level employees), in order to slash $90.1 million from its budget. In the voluntary early retirement program, workers were offered attractive incentives to leave PEMEX, with an 80% retirement package for 20-year employees – meaning some workers in their early 40’s are retiring with nearly full pensions.

“PEMEX is not laying off unionized employees yet, because they are the largest group of workers in the oil industry. Those unionized workers – left alone without the help of laid- off management-level employees - will not be able to carry PEMEX by themselves, which requires talent, knowledge and training,” according to Pedro Martínez Pereda, 66, Ph.D. in Engineering from the University of Texas at Austin and a tenured professor and researcher in the Postgraduate Studies Department of the School of Engineering at the UNAM, Mexico’s leading public university.

Looking back on PEMEX’s history of mismanagement of both natural and human resources, Martínez added, “PEMEX hired people left and right, creating jobs, but it never invested in crude oil-derived industries. It should have better developed its refining operations. Because PEMEX did not develop adequately, 66 years after the oil expropriation Mexico is still exporting crude and importing gasoline!”

Enrique Garduño Navarro, 58, M.S. in Engineering and a former financial analyst for PEMEX, a “37-B” technical specialist on the 44-level PEMEX salary and promotion scale and 21-year veteran of the company, is one of the 5,000 employees laid off this year. He was responsible for analyzing the international petroleum market.

“People leaving PEMEX are doing so because they were offered early retirement, since they were not considered to be part of the new management structure. Either you take PEMEX up on early retirement, or you risk staying on and just getting the legal minimum compensation for a layoff. They threaten you to get you to leave,” Garduño said, adding that, “undesired workers are simply expelled from the institution. Where is the confianza (trust)?” he asks rhetorically.

Despite all the layoffs, PEMEX has actually not cut a single position since the year 2000, instead simply substituting employees. In fact, PEMEX has not cut costs, because it has hired new, inexperienced employees who must be trained, and because it is paying both old and new early retirement benefits to workers far short of traditional retirement age, adding to Mexico’s financial burden.

Garduño said PEMEX could function adequately with just 30,000 unionized workers, as opposed to the 80,000 currently employed. “People sleep on the job because they have nothing to do. Each subdivision is a power clique. PEMEX is a Mafia of family members.”

“PEMEX employees don’t serve the company, they serve themselves at the company’s table,” Garduño quipped.

“As PEMEX grew in terms of workers, it also grew in terms of corruption,” said a Level 39 technical specialist who asked not to be named.

On the one hand, PEMEX is looking to cut its payroll, following orders from high-level executives with personal interests in mind who, despite the obstacles, lay off valuable, experienced personnel, while hiring their own “trustworthy” employees, who often have no background in the oil industry. The next step for PEMEX will apparently be to argue that there is a lack of technically qualified personnel to carry out projects.

“Next year, PEMEX will go public and say it does not have enough qualified personnel, in order to justify the presence of foreign companies in the new management structure,” according to a Level 41 subdivision vice-president who requested his name not be published, since he is still working for PEMEX.

“PEMEX will lay off its unionized employees the same way it did with the others, through an early retirement program,” he added. “Do you honestly believe that in the $71 million PEMEX payout to the oil workers’ union, there isn’t a clause to slash the unionized payroll? On the one hand, PEMEX is giving money away to the union, while it’s giving out severance payments to laid-off, non-unionized personnel. In the meantime, the SHCP is handing out oil kickbacks to petroleum-producing states.”

“What is (Mexican President Vicente) Fox’s game plan?” the anonymous source questioned. “Technically bankrupt PEMEX in order to subsequently justify the presence of foreign companies? The money should be reinvested in the Mexican oil industry to strengthen the production infrastructure.”

Garduño says the Mexican oil industry is in decline, and the actions currently being taken affect the Mexican economy in two ways: by contributing to unemployment, and by increasing SHCP expenses in severance and pension payments, which in turn contributes to inflation. In fact, the cost of pensions has already equaled Mexico’s GDP.

“PEMEX’s current situation does not yet affect the U.S. economy, since social or labor conflict which could affect Mexico’s crude oil exports to the U.S. have not materialized yet,” Garduño remarked. “However, that could change when streams of oil workers invade the Zócalo (Mexico City’s main plaza). In fact, there have already been demonstrations in Villahermosa (Tabasco).”

“What’s coming is going to be chaos for Mexico,” the anonymous Level 39 worker said.

How would a privatized Mexican oil economy work? Contracts with U.S. oil companies are already in effect, some of them for undefined periods, under which minimum export quotas are guaranteed; consequently, PEMEX’s privatization would not have an immediate negative effect on U.S. oil interests. Multiple service contracts, which allow foreign oil companies to explore and tap into Mexican oil wells, will continue as they have until now in violation of Article 27 of the Mexican Constitution, which states that all underground natural resources are property of the State.

“Slamberger will soon be drilling 300 to 500 wells in the Chicontepec (Veracruz) Paleocanal,” Garduño revealed. “They and other companies explore, produce, manage and deliver oil. The spirit of the Constitution is being tread on!”

The privatization of PEMEX will undoubtedly open up opportunities for both U.S. and other foreign companies. It will also benefit individual U.S. petroleum specialists by allowing them to work for foreign companies in Mexico. On the flip side, unemployed former PEMEX employees will be looking for work...and moving around.

“The unemployed will move to central Mexico, where life is cheaper. Mexico’s southeast is extremely expensive: bimonthly utility bills are around $270 (roughly equivalent to a typical monthly salary for a Mexican industrial or service sector worker),” the anonymous source said.

The ripple effect may contribute to a micro-brain drain northward which should reach the U.S. In the event of the highly likely layoff of rank-and-file personnel, that ripple may become a flood.

“We are just seeing the tip of the iceberg,” Garduño stated ominously. “The U.S. has already seen it, and the Americans are stocking up on oil. The fuse has been lit.”