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Cheney's Oil Investments and the Future of Mexico's Democracy

by Martin EspinozaSpecial to CorpWatch
August 8th, 2000

MEXICO CITY -- The GOP's vice-presidential hopeful Dick Cheney once claimed that it was a damned shame the "good lord" didn't put the earth's most abundant oil reserves in democratic countries. It would appear that Cheney's prayers were partially answered last July, when Vicente Fox Quesada defeated Mexico's ruling, authoritarian party, and seemingly ushered in a new era of American-style democracy.

For Cheney, the dawning of democracy in developing nations is a green light for American corporations itching to land multimillion dollar public works contracts. In Mexico, however, Cheney couldn't even wait for "democracy."

Around the same time Cheney became Halliburton Company's chief executive, the Mexican government began planning the most ambitious oil drilling project in the country's history: opening up the 21-year-old Cantarell oil fields in the Gulf of Mexico. Not surprisingly, Halliburton, the world's largest oil services company, was in on the ground floor.

The Mother of All Public Works
Ever since 1938, when President Lázaro Cárdenas nationalized American and British oil operations in Mexico, Mexicans have been particularly wary of foreign industrialists dying to gain access to the country's proud oil reserves. Those worries are, to a certain extent, not without merit.

The Cantarell offshore oil fields, with 12 billion barrels in oil reserves, represent almost 30 percent of Mexico's total reserves (about 40 billion barrels). In comparison, Northern Alaska's Arctic National Wildlife Refuge, which the American oil industry has been lobbying hard to get at, contains 10 billion barrels.

The Cantarell project, which is estimated to cost $19 billion over the next 12 years, was supposed to be outgoing President Ernesto Zedillo's public works magnum opus. In March of 1997, while Zedillo was touring Japan, he asked that country's export-import bank for financing to develop Cantarell, which then was supposed to cost $5 billion.

Almost two years later, in late 1998, James Harmon, chairman of the U.S. Export-Import Bank, traveled to Mexico. Nearly a third of the $1.6 billion in U.S exports the Ex-Im Bank supported that year, a staggering $536 million was loaned to Petróleos de Mexico (Pemex) to pay for the services of a construction consortium headed by Halliburton. The Ex-Im Bank has since financed hundreds of millions of dollars more in Mexico (it's largest single customer), but financing for Cantarell projects continues to be among it's biggest undertakings.

Last year, the Cantarell project became embroiled in a contract scandal that hit the front pages of Mexico's respected Reforma newspaper. Reforma questioned the use of a little-used, but extremely expensive, pumping technique involving the use nitrogen gas to exract oil from the Cantarell oil fields. Reforma reported that several Pemex project managers were sanctioned for their involvement in the costly scheme. However, then-boss of Pemex, Adrian Lajous, denied the sanctions had anything to do with the main Cantarell project.

According to Sergio Benito Osorio, the head of the energy commission of the lower house of Mexico's congress and member of the Democratic Revolutionary Party, Reforma's articles missed the point.

"In my opinion the (media) discussion is over side issues and doesn't go to the heart of the problem," Osorio, told Reuters. "What we have to question is the profitability and financial feasibility of the project, and the need for it."

Indeed, Zedillo had already spent $5 billion on the Cantarell project at a time when Pemex was cutting back on oil output. David Shields, a Mexico-based journalist and oil specialist told the Dallas Morning News, "Great amounts of money were funneled into giving Mexico what will now be a very large amount of idle capacity."

The implication of the criticism was that something other than national interest was behind the Cantarell project and behind it's construction cost overruns. Throughout the scandal, neither Cheney nor Halliburton were ever mentioned.

Hoover's World
A scenario in which Mexico's oil reserves are once again in the hands of private industry would be a Texas oiler's wet dream. Even now, American companies such as Halliburton, Fluor Daniel, and Bechtel dominate Mexico's oil industry, receiving billions of dollars worth of Pemex contracts. But total privatization of Pemex is their ultimate goal.

A few weeks after Vicente Fox won Mexico's presidency, Reforma reprinted an article that appeared in Business Week's international edition. The article, by Hoover Institute scholar Robert J. Barro, called on Fox, Mexico's deliverer of electoral democracy, to "democratize" Pemex, that is, privatize it.

It's no surprise that the Hoover Institute figures prominently in Bush's campaign team. George W. Bush's choice of Cheney as running-mate has already sounded international alarms, as journalists and non-governmental organizations begin to unravel the web oil-industry influence in Bush's campaign. (Those ties also extend to natural gas giant Enron. See Bush Gets Layed)

"I believe they are the ones that are pushing the privatization of the electric and oil industries in Mexico," Osorio told Corporate Watch, referring to US corporations. "With Fox as president it may be that we start moving in that direction. However, this is not something that Mexicans are likely to accept," adds Osorio.

Ironically, in nationalist Mexico, few people know that the man who could become vice-president of the United States helped land a $536 million contract with Pemex. And those who do know aren't talking about it.

Martin Espinoza is a journalist based in Mexico City.