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Fears of Growing Crime Hanging Over Energy Business in Mexico

Theft of gasoline in Mexico is expected to increase by about 50% this year, costing Petroleos Mexicanos (Pemex) a record of more than $1.5 billion a year, up from $1 billion in 2017, Carlos Treviño, the state company's director-general, said recently.

However, gasoline theft is only one of the many heads of the hydra of crime besetting business in Mexico, the energy business included. The number of homicides had already grown to 69 a day last year from 59 a day in 2012. And between January and March homicides spiked to 7,667, a 23% increase compared with 1Q2017.

The incidence of two of the crimes that most affect people in the world of business -- extortion and kidnapping -- have likewise increased.

Only about 7% of crimes are solved, according to official estimates, although civic organizations claim that the true figure is only half as much. The problem, they say, lies not only in shortcomings and corruption among the police and judicial authorities but also the weakness of the laws. In practical terms, prosecution is often impossible unless criminals are caught red-handed.

These problems, however, have not discouraged foreign and other private-sector investors from entering a market with a population of 130 million and about 12,000 gasoline stations, compared to the 16,000 stations and 29 million people living in Texas.

London-based supermajor BP plc opened the first internationally branded gasoline station following the energy reform's end to the Pemex monopoly. Now there are more than 30 brands in the market. Other integrated global operators also have begun expanding their reach into Mexico’s retail fuel business.

Meanwhile, Pemex has taken action to bring clarity into the accounting system of its franchises, whose complexities could have concealed malpractice.

Pemex officials have said that the "milking" of gasoline pipelines is the work of the nation's notorious "narco" gangs, following a profitable sideline to drug trafficking. That may be so, but only in part, according to a security specialist, who advises energy and other international companies in Mexico.

"In my view, the gasoline thieves need intelligence from within Pemex, and they receive it,” the source told NGI’s Mexico Gas Price Index. He asked that his name not be published. “I'd say it's about 50-50 between the gangs on the outside and employees from within Pemex.

"It's very important to note, however, that far from all of the Pemex officials who have provided services for the gangs, [they] have faced very credible death threats to themselves and their families if they fail to cooperate," the source said. "They are by no means bad people."

Last month Pemex did take action.

"We have fired about 100 employees that we suspect or have firm evidence of having provided information or some sort of process that would damage Petroleos Mexicanos on the issue of fuel theft,” Treviño said during a media briefing.

The number of suspects would appear to be relatively small to the damage caused by the theft, but within Pemex it appears to be without precedent. Senior officials who were responsible for massive accidents that include a liquefied petroleum gas blast in 1985 at San Juanico that cost nearly 500 lives, and explosions in Guadalajara in 1992 that killed more than 200 and were believed to be caused by methane, were questioned neither in court nor in a public inquiry.

The security specialist told NGI’s Mexico Gas Price Index that the fear and perception of crime has had a negative impact on Mexican onshore auctions by comparison with the industry's enthusiasm for offshore projects.

"Big companies are not fazed by problems of crime," he said, "but security obviously adds to the costs."

As of April 27, four companies had launched the prequalification process for Round 3.2, which features onshore blocks. Twenty-nine of the blocks are in the Burgos Basin, nine in the Tampico-Misantla and Veracruz basins, and seven in the southeastern part of the country.

The four companies that have launched the prequalification process are Mexico's Jaguar Exploracion y Produccion de Hidrocarburos SAPI de CV and Quimica Apollo SA de CV, along with Argentina’s Tecpetrol Internacional SLU, a division of Techint, and joint venture Tonalli Energia SAPI de CV, which is between Mexico's Idesa and Petrofontera, a unit of Canada's International Frontier Resources Corp.

Round 3.3 features nine blocks in Burgos, all of them of unconventional resources. Two companies have shown interest in the blocks but none had sought to enter the data room, much less launch the prequalification process. Bids for Rounds 3.2 and 3.3 are to be presented on Sept. 27.

 

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