Introduction
In the Mexican political-oil world, Rockefeller is more famous than Hemingway. President López Obrador frequently cited the former to conclude that a poorly managed oil company was the second-best business in the world. However, it seems he’s not as enthusiastic about Hemingway’s explanation of collapses:
“How did you go bankrupt?” Bill Gorton asks in The Sun Also Rises.
“Gradually, then suddenly,” Mike Campbell replies.
The bankruptcy of Mike, in line with one of the central themes of the book, is financial, moral, and personal. It’s so intertwined that at the time it seems almost inevitable.
The State of Pemex
Before misunderstandings arise, this isn’t about López Obrador. The issue is broader. Neither politicians nor oil executives have internalized the lesson from Campbell’s bankruptcy.
Pemex has been in decline for almost the entire century. Gradually, but clearly visible to all.
The various waves of contracts attempted as lifesavers have barely managed to float themselves. For some reason, their attempts to exploit unconventional and deep-water yields have failed—just like their ideas of betting on refining. The debt it has taken on hasn’t resulted in real productivity. Not even the tens of thousands of dollars Hacienda has given it in recent years have worked.
Since the last decade, it has been warned that Pemex is in “technical bankruptcy.” It’s the most indebted oil company globally. It’s the fallen angel—some say history’s—with almost twice as many liabilities as assets. Its short-term liabilities are nearly bigger than its annual income. Currently, there are no conditions for Pemex to access capital markets. All it has left are capital injections from Hacienda and its revolving credit lines—the corporate equivalent of funding daily needs with parents’ money and maxing out the credit card.
Moral Failures
Pemex has also suffered a series of moral failures in recent years. It narrowly escaped when the dismantling of the Climate Action 100+ group, documented by global financial leaders, revealed its sustainability program’s insufficiencies and deficiencies.
However, factors like having the worst mortality rate during the pandemic, international media reporting on abusive austerity for oil workers, and facing numerous scandals without consequences over the past decades (from Odebrecht to various forms of fuel theft) have further eroded its moral standing.
The Norwegian sovereign wealth fund’s public accusation is likely the worst of these moral defeats. According to the ethics committee of one of the world’s largest and most sophisticated funds, anyone funding Pemex cannot rule out indirectly financing corruption.
Avoiding a Sudden Collapse
Fortunately, Mexicans haven’t had to endure the consequences of a sudden collapse of such a central actor as Pemex is for our country’s politics, economy, and public finances.
There are reasons to believe we’re far from such an event. Pemex’s relationship with several banks is extraordinary, and there are no signs that weighty asset managers or pension funds are following the Norwegian line.
However, the combination of progressive factors—personal and moral in Hemingway’s novel, operational, social, environmental, and corporate governance in the corporate world—makes a sudden collapse possible. At this stage, does it matter if Mexican politicians and oil executives can’t or won’t change?
Key Questions and Answers
- What is the issue at hand? The article discusses Pemex’s slow decline, both financially and morally, and how it resembles the gradual yet inevitable collapse described by Ernest Hemingway’s character, Mike Campbell.
- Why is Pemex in trouble? Pemex has been in decline for almost a century due to poor management, excessive debt, and failed attempts at modernization and diversification. Its financial situation is precarious, with liabilities outweighing assets, and it struggles to access capital markets.
- What are Pemex’s moral failures? Pemex has faced several moral setbacks, including a high mortality rate during the pandemic, reports of abusive austerity for workers, and numerous scandals without consequences. The Norwegian sovereign wealth fund’s ethics committee warned that funding Pemex could indirectly support corruption.
- Why is a sudden collapse unlikely? Although Pemex faces significant challenges, Mexicans have not experienced a sudden collapse due to the company’s central role in politics, economy, and public finances. Pemex maintains strong relationships with banks, and there’s no evidence that major asset managers or pension funds are distancing themselves.
- What does the future hold for Pemex? The article emphasizes that the combination of progressive factors—personal, moral, operational, social, environmental, and governance issues—makes a sudden collapse possible. The question remains whether Mexican politicians and oil executives are willing or capable of implementing necessary changes.
