Stefanie Eschenbacher, Reuters

MEXICO CITY
EnergiesNet.com 07 13 2023

Mexico’s oil regulator shelved plans to impose at least three fines against the national energy company Pemex for violations at the country’s most promising new fields, two dozen previously unreported documents showed and three sources confirmed.

It is the latest sign of a weakened regulator, which, after government-backed changes in the leadership, lets Pemex operate with fewer restrictions in order to help reach the president’s ambitious production goals, Reuters reporting shows.

The legal and administrative documents, all dated between June and August last year, contained observations and photographic evidence from unannounced field visits by officials that uncovered several violations.

Draft notifications of fines, which were not signed nor sent, and the related correspondence sent to Pemex detail the violations and legal consequences.

The documents Reuters reviewed do not contain reasons for why the fines did not advance further; but the three sources said the fines were halted in the run-up to and after the leadership changes at the regulator last year.

President Andres Manuel Lopez Obrador’s government replaced the head and a senior official of the National Hydrocarbons Commission (CNH), who had challenged the state company, with former Pemex officials between August and November.

Since the leadership changes, the three sources said senior officials had told them on two separate occasions, when discussing the drafts, that they should no longer fine Pemex.

Two other sources at the regulator added that they were also instructed verbally by the same senior officials to “support” the state energy company in reaching the production goals set by the government.

The sources were speaking on the condition of anonymity because they were not authorized to discuss the matter.

Reuters was unable to find documentation on any official change in policy on fines by the regulator, whose legal responsibilities include evaluating and holding Pemex accountable. Under Mexico’s transparency laws, communications put in writing can be requested and obtained by journalists and other groups.

Pemex, the regulator, the energy ministry and the president’s office did not respond to detailed questions and several requests for comment.

The country’s largest contributor to state coffers, Pemex is also the world’s most indebted energy company. President Lopez Obrador has promised since his election campaign that he would make the country energy self-sufficient.

The two dozen documents from the regulator and Pemex showed that officials started last summer building a case for three fines at the country’s most promising new fields: Ixachi in Veracruz, and Quesqui and Tupilco in Tabasco.

At all three fields, the regulator had planned to fine Pemex for drilling wells without the correct permits; in Ixachi and Quesqui, it also found other violations – including some that led to excessive amounts of natural gas being burnt off.

One picture, added as supporting evidence for the Ixachi fine, showed a huge column of black smoke rising from an open-pit flare where gas and other hydrocarbon products were being deliberately destroyed because of a lack of infrastructure.

The processes for issuing fines were all advanced by last summer, the documents showed, with only final amounts and dates for issuing them to be determined. Three of the sources at the regulator confirmed this.

Senior officials at the regulator had already discussed the proposed fine for Ixachi in a meeting on July 21, the documents showed, and the one for Quesqui on August 9.

SHIFT AWAY FROM FINES

The same three sources said Pemex officials and the new leadership at the regulator had argued that the state company should not be fined for violations because oil and gas activities are strategic and a priority for the country.

In one Pemex document dated August 31 last year and seen by Reuters, a Pemex official wrote to the regulator that some “emergency” measures like drilling a well at Ixachi without permit were “technically and economically justified for the benefit of the Mexican state”.

The document was signed by Rafael Guerrero, then Pemex’s legal representative before the regulator, who was appointed head of the technical division of the regulator in the changes last year.

Pemex and Guerrero did not respond to a request for comment.

In Pemex and the government, the shift away from fines was also noticed: two sources working in the company’s exploration and production, and one at the energy ministry, told Reuters officials were now merely issuing “recommendations” for change when addressing breaches of regulations that might have drawn fines in the past.

Officials from the regulator visited Quesqui again unannounced in mid-April this year and noted vast amounts of gas and other hydrocarbon products being burnt off after a suspected electrical failure at the plant, the sources said.

Their visit was unrelated to the fine for violations at the same field last summer that did not advance; the sources said so far no additional fine has been initiated.

Before Lopez Obrador’s government replaced the leadership at the regulator, Pemex had been fined at least three times for violations at Ixachi and Quesqui, Reuters reported last year. Fines or information from visits are not made public.

Until the leadership changes, the regulator was widely considered the last independent agency trying to keep checks and balances on Pemex.

The energy commission and environmental regulator for the oil and gas sector had already been staffed with officials loyal to Lopez Obrador.

Susana Cazorla, an energy consultant who held several senior positions at the energy commission and the energy ministry, said she was increasingly concerned about what this means for environmental, social and corporate governance issues.

“The most important risk is that Pemex, which is desperate to increase production, will no longer respect the existing rules,” she said. “And that regulators become too weak to demand and enforce changes.”

Even when it did impose fines in the past, the regulator had a hard time convincing Pemex to stick to the rules in certain cases: Reuters reported in November that senior Pemex officials considered some violations were justified because they helped to increase production, and were willing to pay fines.

Reporting by Stefanie Eschenbacher Editing by Stephen Eisenhammer and Claudia Parsons

reuters.com 07 11 2023