THE IMPACT OF THE 2013 MEXICAN ENERGY

POLICY REFORM ON THE COUNTRY’S DEMOCRACY

by

Javier A. Becerril Rojas

Universität Siegen

September 2015

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THE IMPACT OF THE 2013 MEXICAN ENERGY

POLICY REFORM ON THE COUNTRY’S DEMOCRACY

ABSTRACT

Since the 1938 Expropriation, Mexico had administered its petroleum resources through the

monopolistic NOC Pemex until 2013, when President Peña Nieto proposed a Decree to

reform the energy policy, opening the sector to private investment and separating the

administrative functions. The Reform looks for the development of an industry that has

systematically been inefficient and uncompetitive, nowadays operating under a financial

deficit. The spectrum of opinions regarding the governmental decision are wide in every

level; from International Rating Agencies upgrading the Mexican rate, to the claim of an

eventual petroleum looting by international companies and a sovereignty loss, damaging the

Mexican democracy.

This study conducts a research to reveal the reasons behind Pemex –and the Mexican

industry’s– underdevelopment, that involves a hegemonic-party regime ruling Mexico for

more than seventy years by means of corruption, authoritarianism and repression; together

with the analysis of the Norwegian Model, probably only national scheme that has

successfully reverted the oil hinders democracy effect, in order to construct a model as a

relying point of comparison to determine the impact of the 2013 Energy Policy Reform on

the country’s democracy. The main findings are that 1) the unnecessary process of the 1938

expropriation granted over-constitutional powers to the official party and contributed to the

origin of three negative factors within Pemex: its relationship with the petroleum workers

union, the governmental over-trespassing in its control and its untenable contributions

burden, and that 2) while the 2013 Energy Policy Reform undoubtedly impacted positively

on the Mexican democracy, there is still much to do regarding to the governmental influence

over Pemex and the energy sector.

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TABLE OF CONTENTS

INTRODUCTION ............................................................................................................................. 4

CHAPTER 1. MEXICO, DEMOCRACY AND OIL ............................................................................ 10

Brief history of the Mexican democracy: a tale of patronage, underdevelopment and

repression. .............................................................................................................................. 10

The oil is ours! From the Spanish Conquest to the 1938 Petroleum Expropriation ............. 26

Pemex, PRI and STPRM administration of the hydrocarbons industry .............................. 32

Conclusion: evaluating the Mexican experience ................................................................... 36

CHAPTER 2. THE NORWEGIAN MODEL ...................................................................................... 41

An archetypal state of democratic development ................................................................... 41

Does oil advance democracy? ................................................................................................ 43

The Norwegian Model: hydrocarbons sector administration and oil revenue management 48

Conclusion: evaluating the Norwegian experience ................................................................ 53

CHAPTER 3. HINDERING OR ADVANCING DEMOCRACY?........................................................... 58

The 2013 Mexican Energy Policy Reform ............................................................................. 58

Constructing a χEPR as a point of comparison ..................................................................... 65

Comparing the χEPR with the 2013 Energy Policy Reform ................................................. 71

CONCLUSION: ON THE RIGHT PATH BUT STILL GOVERNMENTAL OVER-CONTROL ................. 75

REFERENCES............................................................................................................................... 77

A. Tables .............................................................................................................................. 84

B. Figures ........................................................................................................................... 88

APPENDIX I ................................................................................................................................. 95

CONFIRMATION ........................................................................................................................ 104

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INTRODUCTION

Huber, Rueschemeyer, & Stephens (1997), define formal democracy as a combination of

four features: “regular free and fair elections, universal suffrage, accountability of the state's

administrative organs to the elected representatives, and effective guarantees for freedom of

expression and association as well as protection against arbitrary state action”; however, this

kind of democracy could still produce a regime of economic and social inequality,

accumulating the power among only few individuals, a fact that would not precisely

accomplish the democracy dream, well-defined by George Washington: “democracy is the

government of the people, by the people, for the people” (Ogunbitan, 2012). The authors then

introduce two additional dimensions: “high levels of participation without systematic

differences across social categories (for example, class, ethnicity, gender) and increasing

equality in social and economic outcomes”; in which a social democracy concentrates all the

dimensions mentioned, being it the desired level to reach.

While many factors determine the democratic performance of the states, either for own

consumption or by matters of trade, precious minerals have been the main interest of the

countries’ agendas in relevant areas concerning their national policies (Westing, 1987).

Among them, oil is the principal source of energy in the planet (IEA, 2011) and “the most

valuable commodity in the history of the world” (Mayes & Myers, 2015), this condition

places it as a primary concern to governments all around the globe. However, recent studies

(Ross, 2001) confirm a negative correlation between oil and democracy when “exploiting

variations in the timing and size of oil discoveries to identify the impact of oil wealth on

democracy”; moreover, it has been found that the discovery of relevant oil fields (100 billion

barrels) “pushes a country’s democracy level almost 20 percentage points below the existing

trend” (Tsui, K., 2010). Additionally, Colgan (2013) highlighted the importance of the oil

factor not only among democracies but also in terms of international relations by conducting

an interesting and systematic analysis on non-democratic countries, where he concludes that

the fact of holding relevant amounts of oil provokes an aggressive posture after other states,

turning oil not only into an economic interest but also into a matter of national security; yet,

the author notes that, even if oil is directly linked to aggression, its display level depends on

the national policy established, mainly reflected by the preferences of the political leader.

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Therefore, if democracies yield ground as well as non-democracies to the presence of oil,

then who –or what– is governing who? Shall nations surrender themselves to the concept of

commodities supply and let democracy lose the ultimate battle? The book Escaping the

Resource Curse (Humphreys, Sachs, & Stiglitz, 2007) draws an optimistic horizon accepting

that indeed, oil affects negatively democratic regimes, but suggests that there is a way out

the oil curse by working in two key elements: institutions and transparency. As well, Jones

& Weinthal (2010) feel optimistic about the petroleum asset and suggest the positive usage

of the resources by means of working towards institutional strengthening.

Mexican Minister of Finance –MIT graduate, “Minister of the Year 2014” and architect of

the Mexican Energy Policy Reform of 2013– Luis Videgaray (1998) indicates that for oil-

revenue states, crude price fluctuations determine macroeconomic consequences. This public

wealth shocks have had among the history a fiscal policy response from the governments

impacting, by means of taxes increase, public programs cuts and government size reduction,

the citizens’ economy and therefore the socio-political scenario; influencing the

development, public democratic perception and democratic development in a negative way.

Still, the government is the one designing the policies and then the fiscal policy response can

lay on other instruments –such as funds of stabilization– using the oil wealth to cushion oil

prices fluctuation. To illustrate this approach, the so-called Norwegian Model for

administrating the petroleum sector has been claimed to be possibly the only alternative for

oil-revenue states, and so, many states –Mexico included– have adopted measures based on

this system (Al-Kasim, 2006a; Cappelen & Mjøset, 2013; Ormiston, 2015; Pratt, 1997), still

the debate has moved towards identifying the “necessary conditions” for seizing the

Norwegian measures. A standardized way to follow them is not plausible due to the natural

differences among the states.

Mexico is a North American country composed by more than 116 million people living in an

area of roughly less than 2 million square meters, full of natural resources, oil among them

(CIA, 2014). According to an estimate held by the International Energy Agency (2011) and

the U.S. Energy Information Administration (2011); Mexico was situated in the 9th place

among the top oil producers in the world with a value of 2.9 millions of barrels per day

(MMbbl) in 2012; however, the real production for that year and the following was of 2.5

MMbbl (Petróleos Mexicanos, 2014) and keeps descending. The decline in the oil production

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is said to be related to the lack of investment for exploration and production in new areas as

it has been in a tight spot financially, reeling under large losses and massive pension

liabilities, and if no new investment is provided, said by the U.S. EIA, for 2020 Mexico may

even become a net oil importer (Forbes, 2013). Gómez-López & Puch (2013) argue that low

productivity is driven by the lack of competition and structural reforms, in addition to the

corruption problem which has stalked the Mexican NOC Pemex, which operated the

hydrocarbons industry through a monopolistic regime for more than seven decades, since it

suffered a process of expropriation. Mexico is ranked in one of the lowest place in the world

regarding to wealth distribution equality (CIA, 2013), condition reflected in the contrasting

fact that 33.2 percent of the Mexican population (38 million) lives with less than U.S. $5 a

day (The World Bank, 2015), and Mexican businessman Carlos Slim –who made most of his

fortune after the privatization of Teléfonos Mexicanos (TELMEX) in the mid 90’s through a

policy process of national companies’ liberalization by President Carlos Salinas to boost the

economy– was considered from 2010-2013 the wealthiest man on earth by Forbes (2015),

and since then, just displaced to the second place with a net worth fortune of U.S. $72 billion;

in a vague assumption just to set it into context, Carlos Slim could donate U.S. $1 million to

that poor 33.2% of the Mexican population and still, would not even give the half of his

assets. In addition, since 2006, the anti-drugs policy of the Mexican government has set the

country into a war against the cartels, which has claimed more than 80 thousand lives –more

than those of the Vietnam War in ten years and close to the total victims of the Iraq War–

and no less than 30 thousand missing people, according to the U.S. Drug Enforcement

Administration (Proceso, 2013; Der Spiegel, 2010). What is the role played by oil in the

Mexican disastrous outcomes? And even more, could the black gold help the Aztec’s land

revert the negative situation? President Peña Nieto believes so.

During his presidential campaign, President Peña Nieto promised reforms to overcome the

economic stagnation, the social inequality and the climate of generalized insecurity and

criminality in the country by strengthening the democratic institutions. Yet, even if other

important reforms1 have been achieved by President Peña Nieto, the Energy Policy Reform

1 Reforms to the education sector to promote productivity and competiveness; the telecommunications law to

ensure more advantages for the consumer; the financial sector to attract more resources and the legalization of

homosexual marriages have meant structural changes towards development.

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was his agenda’s priority and declared legacy (Miroff & Booth, 2013). On December 2013,

a presidential decree was signed and passed by the chambers, to reform the hydrocarbons

sector through the related Constitutional articles (Diario Oficial de la Federación, 2013). The

main amendments are summarized in allowing private investment of foreign and national

companies dissolving the Pemex oil monopoly ruling in Mexico for the last 75 years since

the expropriation and separating the institutions in charge of administering the hydrocarbons

industry functions, based on the Norwegian Model, reported by the Minister of Economy

(González, 2015), being this possibly the only country that has successfully used its oil-

wealth in favor of the population, impacting positively its democratic development.

Reactions started to rise after the bill was passed; from one side, the left-wing parties block

together with the former presidential candidates Andres Manuel López Obrador (2006, 2012)

and Cuauhtémoc Cárdenas (1988, 1994, 2000) –President Cárdenas’ son– opposed to the

approved bill and proposed a democratic-based popular consultation for 2015 in order to

invalidate the reform (La Opinión 2013; La Jornada, 2013), which by the time this lines are

written has not been organized. According to the left-wing leaders, the policy will eventually

bankrupt Pemex leaving thousands of Mexican workers without jobs and will grant foreign

companies greater advantages, risking the country’s sovereignty and quitting the right of

possessing the natural resources; consequently looting the country by imperialistic nations

such as the U.S. and Great Britain as in the beginning of the 20th century. They oppose the

neoliberal ideas based on the notion that they only open greater gaps between the majority of

poor people and the minimum percentage of very rich citizens, destroy the environment and

create more corruption. Their version of democracy dictates that the oil sector opening should

have been publicly discussed and voted in a national referendum.

In the other side, S&P raised the Mexican credit rating to BBB+ and Moody’s reported

“enough elements to upgrade” Mexico to “A” according to the sovereign debt director of

Moody’s for Latin America (Standard & Poor’s, 2013; El Economista, 2013). The Minister

of Finance estimated a 1 percent increase in the GDP attributed to the fiscal revenues

expected from the new oil industry and the Minister of Labor and Social Welfare an increase

of 2 million jobs in the next 6 years (La Crónica, 2014; El Financiero, 2014). According to

the Executive Summary on Energy Issues (Gobierno de la República, 2014), the fundamental

objectives of the Reform are to maintain the national property over the hydrocarbons;

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modernize and strengthen, without privatizing, Pemex as a 100 percent Mexican Productive

Company of the State (PCS); promote a greater supply of energetics with lower prices;

guarantee international standards of efficiency, transparency and accountability; fight

effectively corruption within the energy sector; and boost the development, with social

responsibility whereas protecting the environment.

While both perspectives, either for or against, have valid arguments; the reality is that the oil

industry has been experiencing a critical slope –in addition to the oil prices drop– and a

strategy change is mandatory. The federal government bet looks for economic development

by restructuring and opening the sector to private investment as in the Norwegian experience.

Will this strategy impulse a social democracy (Norwegian alike) by increasing and

distributing equally the oil-revenue? Or, will it jeopardize the country’s sovereignty and cede

its natural resources to just a few businessmen, opening even more the gap between the

extreme rich and poor citizens, hindering drastically the Mexican democracy? What is the

comparison between the Mexican and the Norwegian policy? What is the impact of the 2013

Energy Policy Reform on the country’s democracy?

The first chapter examines the historical singularity of the Mexican democracy and its

relation with oil in order to determine firstly, whether oil impacted harmfully the country’s

democratic development –as Ross (2001) and Tsui (2010) suggest–, and if it did, to establish

a taxonomy of the negative factors that originated such outcome. The motivation relies on

the perception that an integral policy construction should consider historical circumstances,

especially in the Mexican hydrocarbons industry, where its expropriation has a relevant

meaning in the collective memory of patriotism and national identity. Simply said, I look for

what was wrongly done in the Mexican case.

The second chapter analyzes the Norwegian archetypal democratic development, its positive

relation with oil and presents the Norwegian Model. The motivation relies on the fact that

Mexico expects similar socioeconomic results as those seen in Norway (reported to be a base

for the Mexican Reform) and therefore, a policy construction should consider its specific

design and characteristics. Simply said, I look for what was correctly done in the Norwegian

case.

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The third chapter describes and stresses the crucial constitutional amendments of the 2013

Energy Policy Reform and constructs a model referred to as χ Energy Policy Reform (χEPR)

after the results obtained in the first two chapters as a reliable point of comparison based on

the Mexican historical circumstances and the Norwegian Model structure, to determine the

impact of the 2013 Energy Policy Reform on the country’s democracy. Simply said, I merge

the strategy to correct what was wrongly done by Mexico with what was correctly done by

Norway calling it “χEPR” so I can compare it with the real Energy Policy Reform and

determine the impact on the Mexican democracy.

The Mill’s Method of Difference is conducted to determine the causal mechanisms of the

dissimilar democratic outcomes from the study cases, based on the premise of homogeneity

under two criteria: oil recovery/discovery (in the case of Mexico the recovery through the

1938 expropriation and in the case of Norway the Ekofisk field discovery of 1969) and a

democratic-kind regime during the oil recovery/discovery event, according to the Polity IV

classification (See figure 1). The motivation relies on the logical train of thought that the

causal mechanisms reflect the failed Mexican policy in contrast with the Norwegian, and

therefore they should constitute the base for a comparison.

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CHAPTER 1. MEXICO, DEMOCRACY AND OIL

It was the autumn of 2010, the voices of some of the most influential personalities in Mexico

were silenced by the presidential announcer in a luxurious conference room during a Business

Summit taking place in Toluca. President Calderón entered the room accompanied by his

host, the young and charismatic Governor Peña Nieto, greeting in their way individuals such

as the second wealthiest man in the world Carlos Slim, former World Economic Forum

Managing Director Claude Smadja and Pemex General Director Juan Suárez Coppel. While

President Calderón speech focused into defending and sustaining his bloody security policy

of war against the drug cartels, Governor Peña Nieto presented the positive results during his

administration and called for the implementation of neoliberal reforms to strategic economic

sectors in the federal level. The contrast in their discourses’ platform was reflected by the

ovations given by the crowd. From one side, the second opposition president –after seven

decades of PRI hegemonic regime– faced a dramatic drop in his approval perception due to

the increasing number of “war casualties” and poor economic performance; and in the other

side, a media-loved PRI governor with outstanding economic outcomes and the highest

transparency grade during his administration, identified as a reformation supporter, making

the energy field the center of his propositions, suggesting change and development by

opening the energy sector to private investment, ironically being member of the old

authoritarian party which nationalized the industry at the beginning of the past century with

the same promise.

At the end of Governor Peña Nieto closing-ceremony intervention, the shriek of “Peña Nieto,

presidente!” invaded the saloon in a remembrance of old-ritual days, as a premonition of

what would happen two years later.

Brief history of the Mexican democracy: a tale of patronage, underdevelopment and

repression.

After the Revolution in 1910, Mexico was a fragmented country with no clear plan and an

open confrontation among its leaders, propitiating political and economic instability added

to the increasing violence. The creation of a democratic state to guarantee the fulfillment of

the revolutionary demands seemed more complex than the initial plan to topple the long-term

autocrat Porfirio Díaz regime. In 1917, as an attempt to consolidate the union, the

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Constitution was signed establishing Mexico as a representative, democratic and federal

republic; and called for the separation of powers into the executive (president), legislative

(deputies and senators chambers) and judicial (Supreme Court of justice) branches, based on

the presidential U.S. system. Great pursuits were made in terms of human rights by abolishing

slavery unlikely the U.S., Great Britain or France, however this was contrasted with the lack

of projected republican and democratic institutions –recurrent phenomenon in Latin

American countries– that would eventually contribute to the formation of the authoritarian

regime along the century. Valadés (2013) explains that an inverse effect was produced: the

slavery societies with strong political institutions could overcome systematic exclusion,

while egalitarian societies with weak political institutions produced modern and complex

forms of segregation concentrating the power in reduced groups.

The untenable situation even after the Constitution, reflected on the assassination of President

Francisco I. Madero –first president after the Revolution–, President Venustiano Carranza –

chief of the Constitutional Assembly– and elected President Álvaro Obregón in 1928, in

addition to the persistent threats by both national and international groups demanded a

strategy change. Succeeding the urgency of consolidating the revolutionary groups under a

single tutelage and due to the nonexistence of institutions to guarantee democracy, President

Plutarco Elias Calles proposed the creation of the PNR Partido Nacional Revolucionario

[Revolutionary National Party] in 1928 to fulfill the gap, founding it in March 1929, as the

first Chairman of the Party’s Steering Committee. The party was a masses aggrupation in

which the power would be bid by the post-revolutionary groups, where in theory everybody

was able to join no mattering the ideology or the role played in the conflict with the condition

of total and unquestionable submission to the sitting president and blind loyalty to the party

itself (Casasola, 1992).

One party to rule them all

The institution suffered two structural changes in 1938 and 1946 concluding its formation

period, assuring a powerful position by including groups as the CTM Confederación de

Trabajadores de Mexico (Confederation of Mexican Workers), the CNC Comisión Nacional

Campecina (National Peasant Commission), the CNOP Confederación Nacional de

Organizaciones Populares (National Confederation of Popular Organizations) and the

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military wing among other unions. Under the motto “Democracy and social justice” the party

was renamed PRI Partido Revolucionario Institucional [Institutional Revolutionary Party].

The Mexican Nobel Prize awardee Octavio Paz (1990) described accurately the PRI’s

philosophy: “La base del sistema mexicano es el control de las organizaciones obreras,

campesinas y populares.” [The Mexican political system base is the control of the labor,

peasant and popular organizations]. This period was characterized by the expropriation of

relevant industrial sectors under a nationalist policy and the inclusion of its respective unions

in the PRI apparatus, being the hydrocarbons industry expropriation process of 1938 the most

relevant, catapulting the popular support to the party.

During its consolidation period from 1946 to 1968, the PRI machinery fabricated an

exceptional powerful presidential figure as the head of a pyramidal corporation who had the

power and authority to decide on any issue without being questioned, mainly because the

party members, the unions and other elites were subordinated to the clientelism relation in

which everybody was benefited either with positions within the government or with

economic benefits, the democratic pressure from the population was relieved with the usage

of low taxes and extensive social programs. This status quo was mainly financed by the

promising and productive oil industry boosted by huge gas and oil fields discoveries that

started an important oil production in 1946, such as the Reynosa case that propitiated the

construction of the emblematic Azcapotzalco refinery (known as the 18th of March in

reference to the oil industry expropriation date)

In addition to the social policy promoted by the PRI, the structural democratic problems

related to the president’s supra-constitutional powers such as facing no opposition from the

congress to act –due in part to the corporatist structure of the party– and the suppressed

electoral competition, were counteracted by legitimatization rituals and symbolism such as

dedazo [point out] and destape [unveiling] processes; where the president elected de facto

his successor by pointing out the PRI presidential candidate unilaterally and subsequently

unveiling the candidate publicly as a way of presenting the next president, gaining support

from the social masses in interest. This processes, the relative stability compared to the

revolutionary years and the social de-pressurization mechanisms of inclusion, let the PRI

govern for many years. The Mexican presidential system was unique in its kind. Adler-

Lomnitz, Salazar-Elena, & Adler (2010), who conducted an extensive review of the

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symbolism and rituals within the PRI regimes, described it as a system which “oscillated

between an individualistic dictatorship similar to that of Porfirio Díaz, the militaristic type

rule […] and a party-based dictatorship similar to the Soviet regime. Simultaneously, it

maintained certain democratic formalities”. The democratic structural design allowed the

regime to survive through the figure of an “exceptional strong presidency” but inside a no-

reelection frame to impede a dictatorship such as Porfirio Diaz’.

The Mexican government confused the instruments of an electorate democracy with those of

an institutional democracy, believing that regular free elections and a no re-election policy

would guarantee the full exercise of the constitutional granted human rights regardless the

unlimited and uncontrolled power of the president by means of corporatism2 and a network

of clientelism3 within the official party. This situation was about to change in the 60s decade

with the end of the “stabilization development period” where the oil production declined

followed by an increase in the national debt to contain the social programs that eventually

produced an economic and social crisis (Colmenares, 2009).

In 1968, multitudinous protests and strikes took place in Mexico City against the government

demanding less indebtedness, freedom of expression, social equality and political

competition, influenced by the May Events in France, the Prague Spring and pro-Cuban

Revolution movements celebrating its 10 years anniversary, initiating the PRI’s decadence

period. The demonstrations coincided with the preparations for the Olympic Games about to

be celebrated in Mexico, this circumstance added to the U.S. international pressure to adopt

a common international posture against communist movements gave tension to the situation.

President Gustavo Díaz Ordaz ordered police intervention to repress student demonstrations

which ended violently with a confrontation between civilians and the national security

bodies. Both students and communist leaders were imprisoned and the army occupied several

education institutions. A unified pacific demonstration was organized demanding respect of

freedom of expression and association, respect to the autonomy of the National University

(UNAM) and real political competition. In the night of October the 2nd, some days before the

2 Samstad (2002) provides a concise study of the impact that the party’s traditional corporatism had into the

democratic transition during the President Carlos Salinas and President Ernesto Zedillo governments. 3 The concept clientelism is applied as the authoritarian PRI’s government resource to buy votes through social

programmes or grant special concession to gain support in elections as described by Fox (1994).

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Olympic Games started, government military groups shot hundreds of unarmed students,

professors and civilians who were peacefully demonstrating in a public square. While the

exact number of assassinated students is hard to determine because of the cover-up by a

controlled media, it is easy to judge the massacre by recent released videos (NillKafka, 2012)

of the happening where hundreds are seen running from the bullets. Some estimate the

killings up to 300 together with dissidents subjected to torture and incarceration that

concluded simply in disappearances (Poniatowska, 1991). The government cynically

accepted –via a presidential speech address to the Congress– responsibility and claimed it to

be an “unfortunate event with more than thirty and less than forty victims” (Barraza, 2007).

The Olympic Games however were a success.

The population was offended, the citizens were wounded and Mexico was lacerated in the

very inner part of its heart: their children. The government had just evoked national symbols

negatively, an appalling reading of the situation had just done the contrary as once happened

with the Niños Héroes4 [Heroic Children] who gave identity to the nation unifying it with the

government and the army; this time the government had miserably killed those symbols.

There was a silent process of divorce between the people and the party, a silence that

ultimately prevented a catharsis with the media mute. Mexico was outraged. The Tlatelolco

Assassination encouraged an internal political crisis of confidence between the citizens and

the PRI of which the party never fully recovered (Carey, 2005).

The authoritarian regime downfall through democratic reforms

In the early 70’s, Mexico experimented an economic crisis due to the oil-revenue decrease

and the protectionist policy of the previous decade based on an “imports substitution” policy,

which looked for a sustainable economic development through the consumption of domestic

products. The strategy included tariffs and barriers to the international commerce and

uncontrolled subsides both for the final consumer and the producer, in exchange for total

governmental control, situation that became untenable. The government implemented

4 Reference is made to the Niños Héroes, symbols created after the 1847 American-Mexican war, in which it is

told the story of six cadets (representing Mexican regions) who fought against the American troops in order to

defend Mexico, and culminated with the suicide commitment of one of them in order to save the flag from the

enemy. The story is still considered nowadays as real by many Mexicans. For an astonishing study on this

symbols see (Aldama & Quiñones, 2002).

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reforms to decrease the external indebtedness that provoked cuts in the social programs and

in the production support together with the promotion of export goods, focusing on

manufactures. As a cause of the measures, the wages stalled and soon strikes were seen

national wide, as well, the producers raised the prices and a great out-flow of capital was

experienced aggravating the crisis. In 1976, López Portillo was elected president in a dispute

where he was the only competitor, exposing the rotten political system and the social

generalized discontent. The PRI was convinced that the circumstances jeopardized its

permanence in the power and therefore electoral and economic measures were adopted.

The electoral reform of 1977 made important changes regarding the electoral competition by

relaxing the party registry procedures and requirements, and introducing the concept of

proportional representation in the congress according to the electoral results. The registered

parties had now the right of representation in the federal and local congresses and were

granted basic competition mechanisms such as the right of postulating a candidate, public

financing, permanent times in television and radio to promote their candidates and their

ideology, and right to a representative member in the Comisión Federal Electoral (CFE)

[Federal Electoral Commission], a government-controlled institution that served as the

highest authority in the electoral process and that approved the party registries, with the

Minister of Interior as its president. In the economic area, President López Portillo

administration established an agreement with the IMF to limit the public indebtedness, reduce

the money supply, restrict the public expenditure, liberalize the external commerce and limit

the parastatal growth of the economy (Guillén, 1990). However, the measures lasted only

one year. The 1978 oil discoveries completely changed the Mexican economy approach from

austerity to incurring in even more debt, asking for loans to “invest” in the hydrocarbons

industry infrastructure, backed by the petroleum to be produced (Rey, 1987). While the GDP

grew over the 8% between 1978 and 1981, the financial disequilibrium between the public

finances and the external debt started to grow as well as the dependency of the economy on

oil since it was believed to be unlimited. In 1981 the oil prices dropped and the public deficit

represented the 14.1% of the GDP, this factor added to the political instability induced once

more a capital outflow unchaining the worst economic crisis that Mexico experienced in its

history. In 1982, despite the circumstances, the PRI won the elections, however the

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opposition public criticism and the popular discontent pushed a new electoral reforms

package.

In 1987 the Tribunal de lo Contencioso Electoral (TRICOEL) [Tribunal of Electoral

Contentious] was created as an autonomous institution formed by nine federal judges

appointed by the congress who were in charge of giving solution to the electoral appeals and

complaints, present in every single electoral process. Even though the reforms along the 70s

and 80s were decisive for the Mexican democracy and for the first time the Partido Acción

Nacional (PAN) [National Action Party], main opposition party, won a governorship in 1989,

the PRI continued sitting presidents and controlling the congress. The electoral institutions’

independence from the government was not set yet, giving the PRI-government a position of

judge and jury and as an expected result, the 1988 election saw the illegitimacy ghost once

again.

Cuauhtémoc Cárdenas, being son of the national hero President Lázaro Cárdenas who

“recovered the country’s oil, dignity and sovereignty by expelling the abusive foreigners from

Mexico” in 1938 (fact that will be discussed in the next section), was the natural heir of the

PRI to whom President De la Madrid denied the presidential candidacy in favor of a short-

almost-bold unpopular technocrat Carlos Salinas de Gortari who had earned a PhD from

Harvard's Kennedy School of Government with the dissertation: Political Participation,

Public Investment and Support for the System: A Comparative Study of Rural Communities in

Mexico (Salinas de Gortari, 1982).

In 1989 as a unification of six left-wing associations led by former PRI members disgruntled

with the non-democratic internal presidential candidate’s election process, the Partido de la

Revolución Democrática (PRD) [Democratic Revolutionary Party] was formed, being the

charismatic leader Cuauhtémoc Cárdenas elected as the newly-registered PRD presidential

candidate. The PRD wanted to unify a real opposition based on social democratic principles

(Partido de la Revolución Democrática, 2015). The party was initially influenced by

“revolutionary blood” coming directly from the PRI and PCM ideology and guerrilla

movements that looked for representation in the government (Ramírez, 2006). The technocrat

Salinas had defeated the populist Cárdenas through the dedazo mechanism, yet the real

question was who the people would elect.

17

The official version states that Salinas de Gortari obtained the 50% of the votes against 31%

of Cárdenas and 17% from the PAN candidate Manuel Clothier. Hitherto, many irregularities

in the process were documented including a “Counting Votes System” failure in the middle

of the night of the election. In 2008, The New York Times retook the declarations of President

De la Madrid from his autobiography, where his published memoirs “give the firmest

confirmation to date of one of this country's biggest open secrets: the presidential elections of

1988 were rigged” (Thompson, 2004). Even more, the then Minister of the Interior Manuel

Bartlett (President of the CFE and in charge of organizing and executing the elections)

recently declared to the newspaper La Jornada that President De la Madrid ordered him not

to inform that Cárdenas was winning in the counting and that definitely Mexico City (one of

the most important electoral districts) was a PRD territory (Becerril A. , 2008). The process

of 1988 was the most controversial, appealed and protested so far. It unchained the 1990

package of electoral reforms.

In 1990, the Instituto Federal Electoral (IFE) [Federal Electoral Institute] was created as an

autonomous institution that replaced the CFE in organizing the elections. Within the IFE the

three powers of the union converged; the executive power represented by the Minister of the

Interior as its president, the legislative power through representatives of the parties in the

chambers by the figure of counselors and the judicial power through the designation of a

justice council. As well, the Tribunal Federal Electoral (TRIFE) [Federal Electoral Tribunal]

was created as the successor of the TRICOTEL in which it changed from an administrative

institution to a jurisdictional granting more tools to act after electoral controversies. The

creation of a new registry of electorate after a thorough revision and new voting credentials

(that before lacked of security mechanisms) gave significant advances in transparency. Some

irregularities that provoked this actions were reported by the American magazine Mother

Jones in his November 1988 edition:

“Fraudulent registration. Control of the CFE meant control of the voter rolls. In

random samplings, more than 20 percent of registered voters in the capital were

either dead, underage, multiply enrolled, or not residing at the address listed. […]

In Juarez, two-year-olds were registered voters” (Reding, 1988)

The 1994 electoral process was approaching and the political actors demanded more

regulations looking for transparency and fair competition. The 1993 reform forbid parties’

18

financing from foreign entities (to respect the country’s sovereignty), religious entities

(avoiding the Catholic Church intervention), governments and commercial entities

(preventing clientelism, corporatism and illegal agreements); in fact, the only funds approved

were given by the IFE and the parties’ cash flow shall be reported to the same institution. The

coalition figure among parties was regulated and recognized. This reforms definitely

represented democratic advances for Mexico, although the 1994 process was going to be all

but smooth. As Lenin once said, “there are decades where nothing happens; and there are

weeks where decades happen” (Friedman S. , 2014).

1994: The year when everything happened

1994 was a convulsed year not only for the PRI but for the whole nation, that year’s events

were about to change dramatically the Mexican political scenario permanently. The first of

January was supposed to salute a new era where Mexico would speed its admission up into

the group of developed countries by the hand of simultaneous liberal reforms in matters of

commerce (entry in force of NAFTA) and democracy (electoral reforms). If well, the

consequences for signing a deal with the U.S. and Canada were not clear and there was no

guarantee that the PRI would respect eventual negative results, the truth is that a generalized

optimism invaded the country because Mexico was supposed to have fair elections, receive

foreign investment to prompt competitiveness, increase demand, curb migration, create high-

value jobs, close the gap between the “American dream” and the Mexican non-developed

lifestyle. Yet the reality was damped with socioeconomic inequality. Kozák (2010) would

write: “it is difficult to estimate the extent of naïveté, cynicism and honest miscalculations in

these proposals”.

Conversely, Mexico woke up that first of January from the dream to reality. Without previous

advice, an armed indigenous group of about 3,000 insurgents self-named Ejército Zapatista

de Liberación Nacional (EZLN) [Zapatista Army of National Liberation] declared war to the

Mexican government in the southern state of Chiapas kidnapping the former governor and

taking control of governmental institutions in towns and cities as a response to NAFTA and

the generalized discrimination and exploitation of the marginalized groups all over the

country. The EZLN is named after the revolutionary leader Emiliano Zapata who was the

agrarian reformer and commander of the army in the south; the group has a Marxist

19

libertarian-socialist and anarchist ideology (Reyes, 2001). Their demands were grouped in

the respect to the indigenous rights (human rights and agrarian properties); respect to women

rights (equitable participation5 in the political life); a new state model of democracy, freedom

and justice (against the PRI hegemony); and resistance against the neoliberal ideal imposed

in Mexico through NAFTA and globalization (Ejército Zapatista de Liberación Nacional,

1994). The movement called the national and international attention due to its demands

against the system and globalization being one of the first in its kind to use internet as a

communication tool (Kahn & Kellner, 2004). The government responded with a military

offensive that quickly took control back of the zone in few days. After the failed strategy, the

EZLN escaped to the jungle and looked for a negotiated pact proposing bishop Samuel Ruiz,

indigenous Rigoberta Menchú and journalist Julio Scherer as mediators in the dialogue. The

government accepted and appointed Manuel Camacho Solís as Commissioner for the Peace

and Reconciliation in Chiapas; a high level politician who was recently identified as a

potential Presidential candidate together with Luis Donaldo Colosio but who was not granted

with President Salinas de Gortari dedazo to negotiate for the government. Meanwhile, the

Minister of Finances tried to contain the negative reactions of the markets after the events

with interventionist mechanisms. The dialogue between the government and the EZLN was

finished on the 22nd of March with no agreements, stressing even more the crisis. This was

just a prelude to the baffling events of the next day.

The history of the PRI started when the elected President Álvaro Obregón was assassinated

in 1928 and President Plutarco Elías Calles conceived the idea of a reform to transfer the

competition for the power from magnicides by post-revolutionary forces in disagreement to

political processes within a national inclusive party framework. As well, the history of the

hegemonic PRI ended with the magnicide of Presidential candidate Luis Donaldo Colosio in

1994, being that the last process in the PRI succession chain.

Luis Donaldo Colosio’s campaign took a dramatic change on the 6th of March in 1994, when

he addressed the nation with his speech Hambre y sed de justicia! [Hunger and thirst for

justice!]. He exposed the critical situation that the PRI (and the whole political apparatus)

5 Even if the women participation was “officially” stated after a long dispute period since the revolution that

concluded in 1954 with the 34th Constitutional article amendment granting women the right to vote, the gender

inequality was still a latent problem in the society at the end of the century.

20

had been dragging since the Tlatelolco Massacre in 1968 by highlighting the authoritarianism

and the democratic dimensions not yet accomplished. It was a day when the party was

celebrating 65 years of its creation and its maintenance in the power, years that ironically

coincided with the labor retirement age in Mexico.

The speech6 could be divided into two parts; the first one in which Colosio exposed the

situation of an authoritarian non-democratic PRI, which by the moment was not possible to

publicly criticize:

“Quedó atrás la etapa en que la lucha política se daba, esencialmente, hacia el

interior de nuestra organización y no con otros partidos. Ya pasaron esos tiempos

[…] Hoy vivimos en la competencia y a la competencia tenemos que acudir; para

hacerlo se dejan atrás viejas prácticas: las de un PRI que sólo dialogaba consigo

mismo y con el gobierno, las de un partido que no tenía que realizar grandes

esfuerzos para ganar.” (Fundación Colosio, 2014)

[It is left behind the stage where the political competition occurred, essentially, in

the inside of our organization and not with other parties. Those times are gone […]

Today we live competition and to the competition’s call we need to respond; to do

it, old practices are left behind: those of a PRI that only dialogued with itself and

with the government, those of a party that did not need to make great efforts to win]

(Self-translation)

And a second one, in which Colosio distanced himself from the hegemonic PRI system

publicly (after 5,000 PRI leaders and supporters and through television) accusing it of

demagogue, authoritarian, power concentrator, influyentista7, corrupt and unpunished; and

expressing his commitment to reform the system towards a democratization against

authoritarianism about to be materialized, without him:

“¡México no quiere retrocesos a esquemas que ya estuvieron en el poder y probaron

ser ineficaces! ¡México quiere democracia pero rechaza su perversión: la

demagogia! […] Hoy, ante el priísmo de México, ante los mexicanos, expreso mi

compromiso de reformar el poder para democratizarlo y para acabar con cualquier

vestigio de autoritarismo. […] Sabemos que el origen de muchos de nuestros males

se encuentra en una excesiva concentración del poder. […] Yo veo un México con

6 For the complete transcription of the speech see Fundación Colosio (2014) or watch the transmission of the

address in Confederación de Trabajadores de México CTM (2011) 7 The term influyentismo used by Colosio refers to the distinction among others in order to obtain illegal or

obscure privileges such as the supra-constitutional presidential rights of dedazo and destape.

21

hambre y con sed de justicia. Un México de gente agraviada; de gente agraviada

por las distorsiones que imponen a la ley quienes deberían de servirla […] ¡Es la

hora de cerrarle el paso al influyentismo, a la corrupción y a la impunidad!”

(Fundación Colosio, 2014)

["Mexico does not want setbacks schemes that already were in power and proved

to be ineffective! Mexico wants democracy but rejects its perversion:

demagoguery! [...] Today, after the Mexican priísmo8, after the Mexicans, I express

my commitment to reform the power to democratize and to end any vestiges of

authoritarianism. [...] We know that the origin of many of our ills lies in an

excessive concentration of power. [...] I see a Mexico with hunger and thirst for

justice. A Mexico of injured people; people injured by the distortions imposed by

a law who should serve them instead [...] It is time to block the path to

influyentismo, corruption and impunity." (Self-translation)

The press acclaimed Colosio’s speech with enthusiasm; for the first time it was “legal” to

report and comment about the urge of a change from the repressive system to a real

democracy; as an act of liberalization, the press expressed what it was forbidden just because

of a single and important fact: Colosio was the official candidate. All the media was free to

talk about the issues without fear to violent actions from the state replicating Colosio’s words

since the official candidate campaign was supposed to be fully covered. The most important

national newspapers made contrasting analysis of the speech on the 8th of March. For

instance, Excelsior published El nuevo Colosio [The new Colosio], shredding the speech and

commenting the candidate’s declarations; Reforma printed ¿Vendedor de ilusiones o

parricida? [Retailer of Illusions or Parricide?], article that if well took the promises with

skepticism also highlighted the openness of the candidate for change (Becerril, 2014). No

mattering whether Colosio meant his words or if the speech was just a master piece of

demagogue itself, the action served as an awakening for the society to demand its human

rights and stand after the political culture that by then governed the country (Centeno, 1997).

Luis Donaldo Colosio was murdered on the 23rd of March in 1994 by the hand and gun of

Mario Aburto during a presidential campaign act in the northern border city of Tijuana some

months before the elections. Colosio’s assassination is considered the first magnicide of the

modern Mexico after the assassination of Álvaro Obregón in 1928. The official version given

8 Referring to the PRI militancy.

22

by the research commission designated by President Salinas to investigate the facts changed

several times as well as its members. From an initial version of “multi Mario Aburto” to the

“lone shooter” conclusion which determined that the murderer acted and planned without

help or mandate (Lustig, 1996).

On the next day after the murder, the government decreed national mourning and ordered the

closure of the Mexican stock exchange and the banks to avert the economic effects that the

financial and rate exchange panic (added to the shaky situation after the EZLN event) could

cause after the worst political crisis Mexico had experienced since its revolution. President

Salinas de Gortari established a fixed exchange rate peso-dollar; although, U.S. $11 billion

dollars were lost from the international reserves in the next 30 days. Ernesto Zedillo, PhD in

economy holder from Yale and Colosio’s campaign chief, was appointed as the substitute

presidential candidate on March 29th.

The war with the EZLN, Colosio’s magnicide and the economic crisis that was being

contained generated a growing concern in the parties and the government of a potential

radicalization as a threat to the democratic advances. While the economy was being managed

as possible, the political actors agreed to discuss a new electoral reform to inject confidence

and certainty to the process as a way to overcome the political crisis and rescue the economy.

The 1994 reform established three structural amendments to the 41st Constitutional article

that represented decisive democratic advances. First, independent citizens were included in

the IFE through the process of “citizenization” so the electoral authority institution was now

managed by the Minister of Interior as its president, congress representatives of the parties

and citizens to add certainty and transparency; second, the candidates’ debates were opened

for the first time to the media to be transmitted along the country; and third, counting of

results the same day of the election by the citizens and parties representatives to avert an

alteration of the outcomes of “system failures”. Even though the Minister of the Interior was

still the IFE president, the reform guaranteed a more transparent and open election

organization with the inclusion of the citizens and international observers.

Ernesto Zedillo was elected president with similar results as his predecessor and the PRI kept

the majority in congress, however a fact that would prepare the ground for the 1996 electoral

reform was well summarized by President Zedillo some months after swearing: the elections

23

were fair but inequitable (Beltrán, 2014). From the total resources during the campaigns, the

PRI spent 78.3% against 10.3% of the PAN, 1.5% of the PRD and the rest 9.9% divided into

other parties (Instituto Federal Electoral, Memoria del proceso electoral federal 1994, 1994).

The debate now was centered on what before was just speculated but now confirmed by the

obligatory cash flow declaration of the 1993 reform: unfair electoral competition. The

opposition parties saluted President Zedillo’s new electoral reform commitment and finally

the situation started to normalize, though the storm had not passed yet.

In September, one month after the election, the PRI General Secretary José Ruiz Massieu

was assassinated after a meeting with PRI congress members. Raul Salinas –brother of

President Salinas de Gortari– was apprehended accused of being the intellectual author of

the homicide. This situation and hearsays of the economy containing mechanisms about to

cede stunned the country. On December 22nd, The Bank of Mexico announced the ending of

its untenable intervention in the exchange rate market. The peso lost half of its value, the

inflation reached a 52% and the GDP dropped 6.9%. To face the crisis, The World Bank

together with the International Monetary Fund granted Mexico a credit line and President

Clinton lent the government U.S. $20 billion by an executive order against the U.S. Congress

position; in response, the Mexican government cut the federal expenditure and raised the

value-added tax (VAT) from 10% to 15%. The economic crisis hit the country as never

before; the gap between the outstanding rich people and the group of the “less than U.S. $5

a day to survive” increased exponentially. The general discontent against the government

was latent and it was highly probable that the social structure would not resist a new electoral

process in an unfair arena (Eduardo, 1997), last call for the 1996 reform.

The 1996 electoral reform established:

A limit in the over-representation in the Chamber of Deputies to promote plurality.

No governmental interference with the IFE. The Counselor President was not

anymore the Minister of the Interior but an independent citizen elected at least by two

thirds of the Chamber of Deputies.

The TRIFE evolution into the Tribunal Electoral del Poder Judicial de la Federación

(TEPJF) [Electoral Tribunal of the Federal Judicial Power] as the judicial arm of the

IFE to attend the electoral controversies.

24

The possibility for Mexicans living abroad to vote.

Permanent mechanisms for controlling and monitoring the origin and destination of

the funds.

Gender equity in the process.

With equity as the main objective, all contending parties were guaranteed access to

the media much broader and better distributed. In addition, the law formalized IFE's

obligation to perform sample monitoring of the media transmission times of political

campaigns (Presidencia de la República, 2000).

In the other battle field, the EZLN Movement propitiated important democratic advances in

human rights matters which relatively pacified the situation in 1996. Even if the reform for

women rights and gender equality would be approved until 2002, the federal government

alternation and plurality until 2000 and NAFTA was about to stay; the Acuerdos de San

Andrés [San Andrés Agreements] as an official document was produced in 1996, being the

result of further negotiations between the EZLN, NGOs and President Zedillo’s

administration to adopt an inclusive policy for the indigenous communities (Presidencia de

la República, 1996).

The outcomes triggered by the 1996 amendment were about to picture the situation in the

immediate mid-term elections where for the first time the PRI lost its majority in the Chamber

of Deputies, in the Senate and prior to the federal elections of 2000 a plurality was

experienced in all the levels of government. In summary, the national distribution of the

power was 46% for the PRI, 29% for the PAN and 20% for the PRD. While the PRI seemed

every time more fragmented and weakened, the Mexican democracy was finding advances

through reforms that strengthened its institutions. The presidential election of 2000 would

seal the culmination of a nation project that was born in 1928 as the response to an unfinished

revolution, delivering the yearned promise of democracy to Mexico, passing from an

electoral democracy to an institutional democracy through its reformation.

Six candidates were granted the registry to compete in the presidential elections of 2000. The

most visible opposition was associated in two blocks by the figure of coalitions regulated in

the 1993 reform: PAN and PRD. The resources amount given to the PRI and the party-

coalitions were distributed as follows: PRI 30.3%, PAN coalition 30.2% and PRD coalition

25

34.1% (the rest to the other 3 candidates). For the first time the PRI had slightly less resources

than the PRD coalition but in the overall the distribution within the three main candidates

were practically the same. Following a democracy-party trend, all the parties selected their

candidates through internal campaigning process. The PRI conducted a long internal

campaign that ended with the rupture of the participants and the public party weathering; the

PRD contest ended with the resignation to the party of one of the two contenders to found a

new one and participated separately in the elections; only the PAN showed a party union,

fact that would be determinant in the elections (García & Figueiras, 2006). The process was

presumably legal, fair and organized by the citizens without governmental intervention.

Figure 2 shows the results of the election where in the three categories the PAN won over

the PRI and PRD. No impugnation or controversy was presented. The inclusion, competition,

equity, transparency and (most important) non-intervention of the government was reflected

not because the PRI lost or because the PAN won but because the results were unpredictable

as it should be in a free and fair electoral process of solid institutions.

Following the creation of several institutions against violence and discrimination of women

such as the Instituto Nacional de las Mujeres (INMUJERES) [National Institute of the

Women], the electoral reform of 2002 established the obligation of the political part ies to

encourage women participation in the national democratic sphere as well as equity in the

opportunities to hold governmental positions. In 2005 the right of vote for immigrants was

recognized as a measure to embrace other sectors of the population who were not Mexicans

but citizens and therefore were affected by the national political life.

The elections of 2006 favored once again the PAN, although this time less than one percent

of difference made Felipe Calderón president over Andres López Obrador, leaving the PRI

in a far third place. The PRD accused the PAN and President Vicente Fox of blocking the

democratic exercise by promoting a dirty campaign to discredit his presidential candidate

relating him to radical left ideas of industries expropriation. He was also accused of accepting

financing from Venezuelan President Hugo Chávez (Grant, 2012; Tejeda, 2010). After PRD

violent protests and demonstrations that paralyzed Mexico City for several months, the

TEPJF judged in favor of the election’s legality after analyzing the controversies presented

and recounting many votes. This episode propitiated the reform of 2008, in which the

26

campaigns were once again regulated in the “official campaign times” concerning a definite

day to start a campaign and to end it to ensure even more a fair and transparent competition,

as well the government would not have propaganda during the electoral times and judicial

mechanisms were created so that the IFE could execute its authority not only in an

administrative way but also with the possibility to sanction citizens, party members and

candidates through the TEPJF, which was decentralized establishing regional offices to

attend local cases more efficiently and in detail.

President Felipe Calderón, decided to face the drugs issue with a frontal strategy of military

intervention which resulted in disastrous events, costing the life of thousands of innocent

citizens and intensifying the insecurity, factor that would be determinant in the 2012

campaign.

Enrique Peña Nieto, an outstanding-popular and charismatic former governor of the State of

Mexico, with an extensive media coverage during his administration and who captured

special attention for his marriage with Televisa –biggest media company in Latin America–

actress Angélica Rivera, gave back the presidential chair to the PRI. Figure 3 shows the

results of the federal election in its three categories where the PRI obtained not only the

presidency but also majority in both chambers. Andrés López Obrador participated as the

lefts’ candidate for the second time ending in the second place and displacing now the official

party PAN to the third place. Undoubtedly, the PRI renovated itself during the 12 years period

of alternation and constructed support among the population that once decided that it was

enough of the same. Whether the decision was a product of right-targeted marketing

campaign, the positive performance of Peña Nieto during his state administration, the bad

public opinion generated by the drug war, the majority decision for the better old system or

simply product of a healthy democracy is far beyond the scope of this paper; yet the truth is

that Mexico would experience a radical change through structural reforms promoted by the

PRI back in power.

The oil is ours! From the Spanish Conquest to the 1938 Petroleum Expropriation

In October 1522, the king and emperor Charles V issued a royal decree that confirmed

Hernán Cortés as the governor of The Viceroyalty of New Spain (an extensive area in which

not only Mexico but half of the U.S., Central America and other islands were included) after

27

defeating the Mexican Aztec Empire one year before. Among other issues, The 1522 Royal

Decree conceded the right to extract gold and other minerals in the New Spain with the

condition of paying a tax over the products; representing the first trace of a mining policy

regarding the exploitation of natural resources in what would become Mexico (Martínez,

1990). Rapidly, the mineral exploitation, benefitted from The Viceroyalty resources, became

the principal income source for the Spanish Crown. As the industry grew, more investment

were needed for technology development and operations in the key industry; fact that José

Gálvez –Visitador9 in the New Spain from 1765 to 1771– communicated to the king together

with the advice of organizing the miners’ union similar to the tradesmen union, deriving in

widespread reforms issued in the 1783 Reales Ordenanzas para la Minería de la Nueva

España [Royal Decree for the Mining of the New Spain].

The decree established that all extracted underground wealth, including oil (bitumen or

"juices of the earth" according to the designation of the epoch) were heritage of the Royal

Crown and therefore only the Crown had the power to grant individuals the right to exploit

it. This mandate came together with the creation of the Real Tribunal de Minería de la Nueva

España [Royal Tribunal of Mining of the New Spain], first institution in charge of

administrating and supervising the industry. The Tribunal was composed by a general

director, a general administrator and three general representatives. The representatives should

be miners with more than ten years of experience and preferably with a previous career within

the institution; the director and the administrator were elected from the representatives for a

period of nine and six years respectively. The institution served as the highest authority

granting licenses to explore and operate (in exchange of taxes, fees and rent payments),

solving controversies, administering the Banco de Avío [Bank of Loan] derived from the

revenue and the Colegio de Minería [College of Mining] which had as objective to increase

the mineral production through scientific knowledge and technological development

(González (ed.), 2015). Yet, even if oil was included in the decree, it did not constitute a

9 “Royally appointed official sent periodically to the Spanish colonies in the Americas. The Visitador reported

to the Council of the Indies (colonial office) in Madrid. Visitas were to be initiated without warning; they might

concern only one official or province or an entire principal colonial jurisdiction (a viceroyalty or captaincy

general), in which case the inspector was called a Visitador general.” (Visitador, 2015)

28

significant resource. Figure 4 illustrates the first sector organization of the mining industry

in the New Spain.

After the Mexican Independence in 1810, very few changed related to petroleum activities;

it was not until Edwin Drake’s 1859 incursion in industrializing petroleum in the U.S. and

the discovery of good quality oil in Mexican territory by Antonio del Castillo in 1862 that

Emperor Maximilian I of Mexico saw an opportunity to collect funds of the potential oil

availability and granted the first concessions for exploring allegedly oil fields. Nevertheless

the illusion did not last long for many entrepreneurs from around the world who traveled to

Mexico with the purpose of sharing the black gold wealth because the conditions of the new

Mexican Republic lacked of transportation infrastructure added to high deep-exploration

costs and minimum –even null– knowledge and experience in the matter, resulting in an

insignificant production compared to other parts of the world. Foreign and national

investment was needed.

In 1884, long-time autocrat Porfirio Díaz promoted a package of liberal reforms for attracting

foreign investment to develop the national industries; within the package, the Código de

Minas de los Estados Unidos Mexicanos [Mining Code of the Mexican United States] was

issued. It derogated the 1783 Decree for the Mining and revoked the exclusive right of the

nation over subsurface resources transferring it to the owner of the surface; declaring that the

products collected and extracted from the legally bought grounds constituted entirely the

owners property and removed the base for any taxation or regulation from the state (Díaz,

1995). The objective was to stimulate the localization of oil fields, attract foreign investment

and acquire technologies. Landlords had rights with basically no restriction and those without

properties were given licenses to explore federal territories; in case the exploration resulted

in oil discoveries, the licensees were given permission to export the natural resources, refined

or elaborated products and to import machinery and technologies free of taxes in exchange

of an annual percentage over their income. Two firms in particular were the most benefited:

Doheny’s and Pearson’s, American and British companies respectively.

The necessity of national and foreign investment for the newborn industry, and the unfilled

legal gaps in the 1884 Mining Code and the 1901 Petroleum Act, provoked an uncontrolled

proliferation of companies in which landlords had no obligation whatsoever with the state

29

and licensees commonly argued that the exploration, production and exploitation structures

of their property granted them rights over the ground and many times this led to the

assignation of federal properties to particulars for a derisory payment based on the Civil Code

of the time (Celis, 1988).

As the national industries growth by similar paths as the petroleum sector, the socioeconomic

disparity achieved unsustainable levels which ended up in a national conflict. The Mexican

Revolution had as a consequence structural reforms for the industries that looked for a better

wealth distribution coming absent during Porfirio Díaz dictatorship by benefiting foreign

companies. President Francisco I. Madero –first president after the revolution– decreed a

special tax over petroleum production in 1912, his successor (and murderer) President

Victoriano Huerta raised the contributions to be paid as well and President Venustiano

Carranza –after its respective increase in the tax rate–restored the national domain over

subsurface resources through the 1917 Constitution, meaning that the government had the

authority to reassign properties given by Porfirio Díaz regime unilaterally. By 1920, while

more than 200 private petroleum companies were operating in Mexico, the oil production

reached its peak level positioning Mexico in the second place (only after the U.S.) within the

oil producers in the world, sharing the 25% of the world’s output of petroleum; though 90%

of the production was controlled (owned) by Doheny’s and Pearson’s foreign companies

(Unthoff, 2008). The open denial of the companies to obey the oil-renationalization in the

Mexican Constitution initiated a series of clashes with the government that would last until

the expropriation of the industry in 1938 due to the accumulated power that the owners had

over the Mexican sociopolitical sphere. Their influence resided mostly in the share of the

total governmental revenue (about a third) by the concept of oil production taxes, that in

times of instability and urged resources to face insurrections, civil wars and coups during the

post-revolutionary period let the oil companies mitigate the impact of the reforms, even

challenging the President’s authority and influencing the U.S. and Great Britain governments

to apply pressure over the post-revolutionary regime, jeopardizing the national sovereignty;

such is the case of 1922 when President Álvaro Obregón negotiated with the U.S. to abrogate

a retroactive national domain right established in the Constitution in exchange of not

intervening military and recognizing of his government, which was openly withheld due to

the assassination of President Carranza and the oil companies disputes.

30

President Plutarco Elías Calles tried to take control over the oil industry in 1925 by repealing

the agreement between his successor and the U.S. government resulting once again in a U.S.

diplomatic intervention; threatening to open the borders for free traffic of weapons by rebels

who were fighting a civil war against the Mexican government adding the issuing of a

corollary to the Monroe Doctrine in 1927 that declared governmental protection for U.S.

citizens property even abroad (Bucheli, 2008). An agreement was reached to respect the

companies’ properties once again in exchange of the U.S no-intervention in the civil war.

However, within the context of the U.S. government fighting itself against the oil companies

in the U.S. and the 1934 Good Neighbor Policy10, the U.S. government announced that

further controversies should be discussed between the oil companies and the Mexican

government without the U.S. Department of State intervention.

In 1938 the political situation had drastically changed in comparison to the 20’s. With the

creation of the party as a unifying and inclusive institution, the post-revolutionary forces

were finally in peace working towards a single national government project; insurrections,

civil wars and coups were no longer part of the national life; the hydrocarbons industry

contribution to the national finances were not consequential anymore; the U.S. Good

Neighbor Policy supposed a non-intervention eliminating the military threat; and a new

world-dimensioned war in which the powerful nations were “campaigning” to obtain as more

allies as possible during the threats of fascism and communism in the world, letting Mexico

act with leverage after the U.S., as narrated in the Pulitzer awarded The Prize: The Epic Quest

for Oil, Money and Power (Yergin, 1993).

This situation let the government maneuver in favor of the national interests; the 1931

Mexican Labor Code decree required companies in general to have Mexican nationals in

90% of their paysheet, train Mexicans in order to replace foreign technicians and to “open

the books” for the workers unions so as to negotiate collective contracts proportionally to

their incomes and profits.

10 “In December [1933, President] Roosevelt stated, “The definite policy of the United States from now on is

one opposed to armed intervention.” Roosevelt’s Good Neighbor policy represented an attempt to distance the

United States from earlier interventionist policies, such as the Roosevelt Corollary and military interventions

in the region during the 1910s and 1920s.” (U.S. Department of State, 2015)

31

The new conditions did not last to affect the oil sector, two dozens of independent petroleum

workers unions grouped together under one single umbrella forming the Sindicato de

Trabajadores Petroleros de la República Mexicana (STPRM) [Union of Petroleum Workers

of the Mexican Republic] by recommendation of President Lázaro Cárdenas so the exploited

labor could have a powerful and ordered representation and bargain a new collective contract.

The huge union tried unsuccessfully to negotiate under the Labor Code decree that resulted

in a general strike recognized by the government and declared the situation as a “conflict of

economic order”, acquiring the obligation to be solved by the Arbitration Board. The final

verdict for the companies was to increase the wages in 27 percent related to the unfair

income-profit relation plus additional social benefits as medical care, vacation pay, sick

leaves and a pension plan (Haber, Maurer, & Razo, 2003).

The resolution soon had President Lázaro Cárdenas and the oil companies’ representatives

discussing in Palacio Nacional11 the new terms under which the hydrocarbons industry was

going to be administered. After a heated confrontation in which a representative summarized

the position of the companies after the government by pleading insufficiency of the

President’s word in guaranteeing the terms of a settlement, exclaiming: “Mr. President, those

are your words. Who guarantees for you?” referring to a lack of authority and control over

the new-born union (fact partially true that would become the reality in the next decades).

President Lázaro Cárdenas decreed on the 18th of March the expropriation of seventeen

American and British oil companies (Riding, 2000).

Even if President Lázaro Cárdenas declared that the companies were to be expropriated for

their “arrogant and rebellious attitude”, the measure was not an impulsive act of republican

patriotism in favor of the workers as it is widely thought, but the materialization of the re-

nationalization process –after the privatization by dictator Díaz– of the subsurface resources

in the 1917 Constitution, giving the government authority to reassign properties unilaterally

(with a compensation payment). This was also the result of a nationalist policy inherited from

the revolutionary movement that claimed the Mexican right for its natural resources usage

and an equal distribution of the wealth among the population (not the foreign companies).

The decree was immediately received with national support; from moral recognition as a

11 The seat of the Federal Executive.

32

national hero to donations from particulars to compensate the oil companies’ expropriation.

Abroad, the U.S. and Great Britain openly criticized the unilateral act of sovereignty that

boosted even more national support. However when WWII broke out the conflict finalized

with the restoration of diplomatic relations which coincided with the full payment for the

expropriated companies. The challenge ahead now was how to handle an industry that lacked

of institutions, capital, technology, skilled workers and –more important– a national plan of

action together with an over-powerful oil workers union that would eventually represent a

decisive factor in its development.

Pemex, PRI and STPRM administration of the hydrocarbons industry

After the expropriation event, the government had few options on how to administer the

newly recovered strategic sector, yet it was not completely unexperienced. The NOC Pemex

was founded in 1938 to operate the sector as a whole materializing the nationalist policy

implemented by President Cárdenas through the 27th Constitutional article, strategy that

would last until 2013 with just a few short range changes. It superseded the governmental

organism Administración General del Petróleo Nacional (AGPN) [General Administration

of the National Petroleum] that took absolute control of the industry after the expropriation,

organism that as well, due to the lack of productivity and investment, replaced Petróleos de

México (Petromex) [Mexican Petroleum]; a mixed capital company created in 1933 as a

domestic market regulator, national demand supplier and nationals labor trainer of which 60

percent of its shares were property of the government and the rest open for Mexican private

investment in a way of financing the liquidity need of the company; still the private-intended

share was mainly acquired by three other national companies, resulting in a 6.3 percent of

real Mexican private investment (Celis, 1988). The fact that a prior strategy to include private

national investment in a national company failed could possibly discourage the government

from considering it on Pemex and therefore the NOC was structured to operate under an

imperfect competition ground in the variable of national monopoly. As Parkin (2004)

explains, companies operating under this regime are characterized by economic and

organizational incompetency development, destiny awaiting for Pemex.

Three identifiable factors determined the NOC organizational performance in the following

decades and its role in the political life of the country: its relation with the influential STPRM,

33

the direct control of the PRI-government over its administrative board and its exorbitant

contribution to the national budget leading to a non-transcendent investment in the

technological and environmental development of the industry.

Being the conflict between the STPRM and the foreign companies the catalyst of the

expropriation, the union immediately demanded ascendancy in the Pemex management to

President Cárdenas who was entirely convinced with his nationalist regime and the electoral

support that the huge union represented for the party. Even if the company’s management

board was constituted by public servants (working for the Ministries of the National

Economy and Finances) and members of the STPRM; the union took absolute control over

the new-born NOC. Alan Riding (2000) comments that “the resulting anarchy [imposed by

the STPRM] soon persuaded the government of its mistake. In 1942, after lengthy

negotiations during which oil workers were granted wage increases, social benefits and

numerous other privileges, the union finally recognized the absolute authority of Pemex’s

board of directors”. Howbeit, the consequence of obtaining more advantages consolidated

the union as a powerful group that the PRI eventually decided (needed) to include in its

political machinery. Soon, the union leaders were negotiating with the PRI strategic positions

and benefits in exchange for unreserved backing during electoral times; which at the same

time occurred by the union leaders’ threat to cut the workers social benefits and/or the

termination of their contracts if they did not vote for the PRI or assisted to campaign events,

as registered in reports issued to the Instituto Nacional Electoral (2012); not picturing a

secretive or isolated conduct, but an open common practice in basically all the unionized

industries. As Muñoz (2006) considers, during the authoritarian PRI regime the party not

only resulted elected due to public resources usage in political campaigns or through the

intimidation of opposition candidates but also because it accounted with a huge electorate

mass through the unions that in one way or another resulted benefitted from the government

policies.

Through Pemex board of directors, the Minister in charge of Pemex (appointed by the PRI-

government) and the STPRM in complicity with the party; the PRI’s centralization,

concentration of power and clientelism particularity was inherited to Pemex, which generated

a symbiotic and dynamic relation of corruption, influence peddling, bribery and impunity.

Commonly, STPRM general secretaries continued their political career within the PRI-

34

government and vice versa; such is the case of Carlos Romero Deschamps, PRI member since

1961 (and current senator) who was elected STPRM general secretary in 1997; protagonist

of the Pemexgate12 case –together with Rogelio Montemayor (Pemex former director) and

the PRI national leadership– in which a U.S. $52 million13 “loan” from the Pemex and

STPRM fund (coming from oil-revenue) was used to finance the PRI presidential campaign

in the 2000 election. The institutions and actors implicated were found guilty but only a U.S.

100 million fee was imposed to the PRI and just one sub-director was incarcerated because

the governmental position of the other actors during the trial gave immunity to judicial

processes (Heras-Gómez, 2007). Possibly the most emblematic event where the corruptive

relationship PRI-STPRM-Pemex of the last six decades was exposed.

The inadequate management of Pemex was not only characterized by political misbehavior

but also by conducting an exploiting tax contribution policy that certainly no company would

choose to operate under; though the “social” condition Pemex was attributed to, allowed the

PRI-government and the STPRM (assigning labor places) direct the NOC into an

unsustainable financial situation visible even after eight decades of existence. Figure 5 shows

Pemex Income Statement indicators for the period 2000-2014, taking as base year the

government alternation of regime, including the 2008 energy policy reform to stress that a

simple change of government or the short range of the mentioned policy was not enough to

change the course of Pemex. The figure displays the amount of taxes, duties and

contributions paid, which exceeded the operational profit of the NOC in almost every year

except in 2006 and 201214, functioning with an average deficit of 6 percent of the total sales

in its net profit for the last 14 years, results making the NOC performance financially

unsustainable as a commercial entity, which was never the case of Pemex. Carreón &

Grunstein (2012) argue that having no net profits to invest in an industry that requires

12 Term derived from the 1972 Watergate case when campaign fraud, political espionage and sabotage, illegal intrusions in offices, false tax audits, illegal wiretapping on a large scale, and the formation of a secret fund in

banks in Mexico to pay the illicit operations were perpetrated by the U.S. President Nixon and his re-election

team, discovered and exposed by the media ending with Nixon’s resignation to the presidency. 13 The amount given in the official report is 500 million Mexican pesos. The average official exchange rate for

April, May and June 2000 (campaign months when the money was likely to be used) considered for the amount

conversion is 9.5 Mexican pesos per U.S. dollar (Banco de México, 2015). 14 For the year 2006 and 2012, the net profit represented 4 percent and less than one percent of its total sales

respectively.

35

periodic capital injection leads Pemex with the necessity of incurring into debt without

realistic possibilities of a return payment.

While both the total sales and the net profit decreased after the 2012 technical balance

between state contributions and the operational revenue, for 2014 the deficit in the net profit

reached a 16.6 percent against an accumulated 3.6 percent decrease in the total sales. This

economic disparity relation is explained by the fact that the amount of taxes, duties and

contributions that Pemex had to pay are more likely to answer to a fixed than a proportional

rate related to the high contribution of the oil revenue to the national budget; setting Mexico

in a risky place susceptible to oil prices fluctuation and petroleum reserves; common practice

in oil-revenue states with negative correlation between oil and democracy. In the comparison

made by Espinosa & Valencia (2011), the peculiarity of Pemex state contributions is

contrasted with the position of its main competitors (both NOCs and POCs15) where

Petrobras, Shell and British Petroleum pay in taxes around 5 percent of their total sales and

PDVSA, Ecopetrol and Exxon 15 percent against a 51 percent16 of Pemex.

The case of the gap (see Figure 5) between the total sales and the profit before taxes, duties

and contributions is not only related to the high taxation but also to the fact that Pemex

possess the less efficient labor force among the oil companies in the world. Luis Pascal –

General Director of the Center of Economic Studies of the Mexican Private Sector– explained

that in average, the relation between total sales per employee in oil companies is U.S. $2.9

million (Conoco Phillips’ relation is U.S. $5.56 million) in comparison with the U.S. $0.73

million of Pemex; and even more, for 2007 the amount by concept of “pensions and

retirements” paid by Pemex represented 30 percent of its active workers paysheet (El

Universal, 2008). Since 1938, the STPRM was responsible for the collective bargaining

contract, allocating work positions with no restriction and charging quotas both to Pemex

and to each unionized worker (81.7% by 2012) for its operation. Friedman (2011) aptly

summarized that “Pemex has, in its eight decades of operation, achieved a spectacular record

of inefficiency and corruption, serving as a cash machine for the government, slush fund for

politicians and a patronage mill for party loyalists”.

15 Private oil companies. 16 Data from December 2010 and in the case of British Petroleum December 2009.

36

Conclusion: evaluating the Mexican experience

The night of the 18th of March in 1938 marked the commencement of a new era in the

Mexican history with President Cárdenas address to the nation announcing the petroleum

industry expropriation that would not only affect the oil activities but also influence political

decisions and the democratic development of the nation. Even if the speech17 did not

constituted a specific plan of action for the strategic sector, it provided a detailed account of

the events that led to his decree and, even more, the potential threats that the nation was

facing in the current situation; fact that allows an evaluation of the following years

performance by counterpoising the avoided consequences with the subsequent results.

Cárdenas accused that the whole economic activities would be jeopardized if the situation of

conflict between the union and the companies were about to continue by means of shortening

the combustibles supply and considered that his decision was for the benefit of the whole

nation. Followed by that, he recalls the democratic principle over which the whole decree is

based:

“It is the national sovereignty itself which would be exposed to simply foreign

capital maneuvers; which forgetting its previous constituency in Mexican

companies, under Mexican laws, pretends to elude the mandates and obligations

imposed by authorities of the nation.”

After a brief summary of the conflict happenings, he continued with powerful accusations

against the companies for their abuse over the national human and natural resources,

discourse widely used during his nationalist platform and even throughout the process of

negotiation for the 2013 Energy Policy Reform:

“It has been repeated ad nauseam that the oil industry has brought additional capital

for the development and progress of the country. This assertion is exaggeration.

For many years, […] the oil companies have enjoyed great privileges for

development and expansion, including customs and tax exemptions and

innumerable prerogatives; it is these factors of special privilege, together with the

prodigious productivity of the oil deposits granted them by the Nation often against

public will and law, that represent almost the total amount of this so-called capital.

17 The speech translation from Spanish is taken from the book: Mexican History: A Primary Source Reader

(Jaffary, Osowski, & Porter, 2009). The complete address to the nation from President Cárdenas can be heard

in Fundación Democracia (2012).

37

Potential wealth of the Nation; miserably underpaid native labor; tax exemptions;

economic privileges; governmental tolerance –these are the factors of the boom of

the Mexican oil industry.”

President Cárdenas exposed the companies’ apathy with the communities where they

operated and the inequity between the national and foreign workers; to his understanding, the

oil-revenue should serve for social causes and so he was decided to do. Yet the country’s

issues by that time related to health, education and economy were not product of the oil

companies’ performance but a multifactorial condition deriving for instance from the violent

Revolution that convulsed the country even decades after its beginning, the Great Depression

that impacted the Mexican economy or the oil’s production decrease. The sovereignty in fact

was defended by President Cárdenas, although the PRI-government subsequent actions made

the policy implementation work closer to a Mexicanized Monroe Doctrine18 than to a

democratic and economic libertarian process as expressed in his speech, where the oil was

snatched from the U.S. and British companies to give it to the Mexicans but that in fact

benefited mostly a reduced political elite.

Ross (2001) explains that three causal mechanisms can be found in the negative correlation

between oil and democracy: the rentier effect (governmental usage of low tax rates and high

social expenditure), the repression effect (governmental actions to suppress pro-democratic

mobilizations) and the modernization effect (governmental failure to shift towards an

occupational specialization, urbanization and higher levels of education). In the Mexican

case, the three effects indeed played a determinant role specifically in the performance of the

PRI-government through its democracy obstruction.

Regarding to the rentier effect; Luis Videgaray (1998), Minister of Finances identified as the

“architect” of the 2013 Energy Policy Reform, assured that oil prices fluctuations affect the

taxation levels in oil-revenue states due to the governmental usage of petroleum income for

financing the national economic dynamism, action that impacts competition and investment

in the industries; which in the case of Mexico, not only an unsustainable low-taxation culture

18 The mention to the Monroe Doctrine is made in reference to the 1823 U.S. foreign policy of “defending” the

American countries against European colonization actions but without halting their own interference in national

issues of Latin America. Summarized in the phrase “America for the Americans”, and wisely replied by the

Chilean politician Diego Portales: “para los americanos del norte, los únicos americanos son ellos” [for the

Americans of the north, the only Americans are them] (Uribe, 1974).

38

affected the development but also the subside policy (gasoline and corn is highly subsidized)

and even more, a highly relaxed position against informal commerce that represents no tax

income for the state. The consequences were faced every time the oil prices dropped through

sexennial economic crises and lately, for instance, with NAFTA where Mexican producers

were affected by the low-competitiveness presented in contrast to U.S. and Canadian farmers.

Even though the overall results were negative for the population, the PRI-government knew

how to politically capitalize the federal “supports” by making sure that the citizens (mostly

in rural areas) knew the fact that even if the economic situation of the country was

unfavorable (to them), the PRI was there to help with social contributions through federal

programs or simply with money, corn and bricks mostly during electoral times. Aldrete-Haas

(1991) makes a comprehensive review of the political usage that the government made of the

housing issue to increase its electorate support, manipulate the benefited citizens with public

resources and overturn competitors through social federal programs, illegal action.

The Tlatelolco Massacre in 1968 was an emblematic case of the PRI repressive actions,

however it was not the first stroke during the 75 years that the party was in office. Rodríguez

(2009) assesses how during the 80s decade the PRI suffered a debate between two ideological

currents: the new generation of technocrats and the statist and the populist and repressive

old-fashioned advocates who had ruled together with the army since the party 1938

inclusions, contributing to the militarization of the administrations; situation fervently

criticized by Nobel Prize awardee Octavio Paz (1990).

Finally, the modernization effect cannot be better realized than through the reading of

indicators such as the illiteracy rate, percentage of poverty and the (nowadays proudly

boasted) manufacture capacity of the Mexican labor force that reflects the incapacity of the

industry to shift into the secondary and tertiary sector. Worth to be said, this effect was one

of the reasons for the 2013 Energy Policy Reform since it is clear that the hydrocarbons

industry has not been modernized, firstly to be competitive and secondly to expect the

socioeconomic benefits coming together with it.

In summary, both the national sovereignty defense and the socialist ideology, pronounced in

President Cárdenas’ speech were indeed accomplished, however the socioeconomic

development expected was not reached, at least based on the democratic principle of equality.

39

Even if the petroleum income was used for the national budget, great part of it was misused

and spent (not invested) in non-profitable areas or enriching union leaders; at the same time

missing areas as education, health or Pemex itself. Money was used to encourage

underdevelopment by means of paternalistic actions capitalized by the PRI as electorate

positive results, drastically toxic for the national economic development (specially for the

NOC) in the medium and long-run; fact observable within the globalization process at the

end of the 20th century when the uncompetitive and unproductive companies faced real

international markets competition. This notion leads to the question of whether the Cárdenas

government had “no choice” or if an expropriation represented the key component to

consolidate the permanence in the power for the newly-born PRI.

Figure 6 shows President Cárdenas-PRI government SWOT analysis during 1938

Expropriation where it can be seen that the strengths were related mainly to the party’s power

accumulation (political strength) and the weaknesses linked to the inexperience and failure

in administering and managing the hydrocarbons industry (industry weakness); as well, the

opportunities are based on the chance of overcoming economic problems by utilizing the oil

and acquiring political support to ingrain the regime by the hand of “the revolution promise”

–a political win-win–; the threats however were similar as those faced by the previous

regimes but less probable due to the pre-WWII international situation that could easily be

read by the governmental officials.

President Cárdenas based his actions on sovereignty and social rights defense in order to

promote a better economic performance and its fair distribution, picturing the expropriation

as the only option available; however, his goals could have been also achieved through the

mechanisms already available such as the approved Labor Code in coordination with the

already organized union, a Supreme Court rule in favor of the workers and a fruitful and

successive taxation increase added to the reduced international support to the companies;

nevertheless the government decided for the expropriation –an authoritarian action of no

respect for the democratic institutions– that resulted in more than seven decades of the

hegemonic party regime making use of the revenue to construct its corporatist structure and

foment clientelism, together with disastrous results for the industry and the economy,

impacting the Mexican democracy.

40

The current situation of Pemex (and therefore of the whole industry) is disastrous. The levels

of production decreased to minimum rates for the last decades, its debt has notoriously

increased, its labor force is alarming unproductive and the investment is practically not an

option due to the circumstances (Luna, 2015); all of this, added to the fact that the oil prices

have dramatically dropped. Regarding the environmental impact, even if actions were taken

by the 2008 Reform to control CO2 emissions and implement security protocols, the

corruption and low investment seen in the industry impeded a progress in the regulation

process; for instance, Greenpeace reported only in 2012 several accidents among them the

pollution of 6 beaches in Oaxaca, a kid’s death related to a leak in Tabasco, a gasoline spill

due to clandestine extraction in Hidalgo and 600 hectares contaminated in Queretaro; all

Mexican states distributed along the national territory reflecting a generalized situation

(Greenpeace, 2013).

In summary, to structure a needed energy policy after the Mexican experience evaluation,

the discussed identified negative factors that generated the bad performance and democratic

obstruction should be considered, added to the principle of sovereignty and defense of the

national resources for the Mexicans regarding to the Pemex negative trend, however they are

not enough to revert the overall industry’s negative slope and therefore structural changes in

the whole sector shall be conducted. Therefore, what model should be applied in the Mexican

case?

41

CHAPTER 2. THE NORWEGIAN MODEL

The authors Huber, Rueschemeyer, & Stephens (1997), recall a definition for democracy that

suggests the combination of four dimensions: “regular free and fair elections, universal

suffrage, accountability of the state's administrative organs to the elected representatives, and

effective guarantees for freedom of expression and association as well as protection against

arbitrary state action”, and introduce two additional dimensions: “high levels of participation

without systematic differences across social categories and increasing equality in social and

economic outcomes”; towards what it is known as a social democracy, the desired level to

reach. Norway currently could be evaluated as the materialization of a social democracy.

An archetypal state of democratic development

The Kingdom of Norway is governed under a parliamentary representative democratic

constitutional monarchy. The executive branch is formed by a monarch (chief of state) who

inherits the seat and is guided by the constitution –which contains his/her rights, duties and

obligations– and a prime minister (head of government) appointed by the monarch –with the

approval of the parliament– every 4 years following parliamentary elections, generally being

either the leader of the majority party or of the majority coalition. The legislative branch is

constituted by a unicameral Parliament with 169 seats, being the members elected directly

through a process of multi-seat constituencies by proportional representation vote. The

judicial branch is ruled by the Supreme Court integrated by a chief of justice and 18 associate

justices, also being appointed by the monarch upon the recommendation of the Judicial

Appointments Board. (U.S. Central Intelligence Agency, 2015).

The actual government administration is the result of a process started on 1814 with the

adoption of the Norwegian Constitution, ending a long absolute monarchy period of

governance that had been in existence since the Norwegian Unification of the year 872. Even

though Norway was not the first or only state to promote constitutional amendments in pro

of the people –Great Britain, France, the U.S. and even Paraguay19 had democratic measures

implemented decades before Norway (Elkins, Ginsburg, & Melton, 2009)–, the Kingdom has

19 Paraguay’s first constitution in 1813 already granted powers to a representative legislature.

42

been successful in boosting democratic reforms and maintaining them better than anyone in

the world so far.

In 1884, the parliamentary system was adopted following in 1911 an amendment which

demanded parliamentary approval for the king’s decisions. 1913 was a considerable headway

in the democratic history of Norway due to the establishment for the first time of universal

suffrage without a gender restriction such as the amendment in 1898 that only allowed the

exercise of the democratic right to the male electorate; since then, the constitution

experienced a relative stability until the first decade of this century. By 2004, the revision of

the old Article 100 pushed the Norwegian democracy forward by shifting the concept of

freedom of print to freedom of expression, the amendment “secures the constitutional

protection regardless of the media the expression is channeled through” (Norwegian

Government, 2004). In 2007, the “no confidence” vote by the parliament was introduced as

a mechanism that forces the government to resign via express petition of the parliament. In

2009, the legalization of same-sex marriages acted once again in pro of the human rights (See

figure 7). Regarding to political participation, Rose (1982)20 comes to the conclusion that

“citizen participation in Norway […] is more broadly distributed than previous analyses

might lead one to believe. In particular, notions of a cumulative hierarchical overlap pattern

of political participation represent an erroneous interpretation of reality in the Norwegian

case”. In this sense; the democratic performance of a representative government elected

through pluralism and electoral participation is tenable in a state where civil rights (such as

freedom of expression and sexual orientation) can be guaranteed through robust and

transparent institutions.

Norway has also achieved economic prosperity in the last decades. The Norwegian

unemployment rate for 2014 is one of the lowest in Europe (The World Bank Group, 2015),

and is classified number six in the world by the International Monetary Fund (2015), the

World Bank Group (2015) and the U.S. Central Intelligence Agency (2015) regarding highest

GDP per capita. Table 1 displays relevant macroeconomic indicators for Norway in periods

of five years from 1980-202021 (International Monetary Fund, 2015). The health and

20 A relative “old” but relevant study is cited to stress the Norwegian democratic process among a wide timeline

rather than recent results that could be considered volatile. 21 From 2015 on, the values represent IMF staff estimates.

43

educational sector advances added to the economic outcomes promoted Norway to be ranked

first place in the U.N. Human Development Index almost22 uninterrupted from 1999 until

2014. The index is a “summary measure of average achievement in key dimensions of human

development: a long and healthy life, being acknowledgeable and have a decent standard of

living […] and was created to emphasize that people and their capabilities should be the

ultimate criteria for assessing the development of a country, not economic growth alone”

(United Nations Development Programme, 2014).

As a result of the democratic progress achieved, economic prosperity and human

development; Norway is ranked worldwide first place in the Democracy Index 2014

(Economist Intelligence Unit, 2015), the Polity IV database 2013 (Marshall, Jaggers, & Gurr,

2014) and the Democracy Ranking 2014 (Campbell, Pölzlbauer, Barth, & Pölzlbauer, 2014).

The indexes measure democracy in a multi-dimensional context and method, both with

political and non-political aspects such as political competition, electorate participation,

institutional development, social equality, economic growth, education and health

performance and freedom of expression among others; which together constitute an integral

and liable evaluation for a state’s governance based on a democratic approach, making

Norway an archetypal state of democratic development; then, what is the role that oil played

in the consolidation?

Does oil advance democracy?

Norway experienced a dramatic positive change in 1969 which would unchain exponentially

its socioeconomic performance and with it a better democratic exercise. Øystein Olsen (2015)

–Governor of the Central Bank of Norway– in his speech23 “Oil and the Norwegian

Economy: The Challenges ahead” acknowledged that “the oil and gas industry has played a

vital role for the strong growth in our [the Norwegian] economy over the past 40 years”, he

mentioned that in fact GDP per capita in Norway was below the average among western

economies when the first oil was brought to surface, eluding the Ekofisk oil field discovery24

in 1969 and its start of production in the decade of the 70s that marked the beginning of the

22 During 2005 and 2006 Iceland was ranked first place, followed by Norway. 23 Speech given at a lunch hosted by Danske Bank Markets, in New York City on the 27th of March 2015. 24 For detailed history of the Ekofisk oil field see Kvendseth (1988), Van Den Bark & Thomas (1981) and

Pratt (1997).

44

Norwegian hydrocarbons production. Helge Ryggvik –economic historian and researcher at

the University of Oslo– recognized that “oil has changed Norway, […] Norway in the early

1970s and Norway in 2010 are two different societies. In 2010, oil is easily Norway’s most

important industry”. (Ryggvik, 2010)

According to the U.S. Energy Administration Agency’s Analysis Brief (2015b) Norway is

the largest oil and natural gas holder/producer of Europe, this condition is clearly observed

in its national income. For the year 2012, the Norwegian energy industry products –crude

oil, natural gas, and pipeline transport services– represented 52% of Norway's exports

revenues, 23% of its gross domestic product (GDP) and 30% of the total government

revenues. The Norwegian gross national savings strategy and total investment across 40 years

(see Table 1) displays an income condition where usually more than 50% of its GDP is left

to maintain a continuous development and financial security for the society, which is not only

supported by the ~20%GDP contribution of the energy industry products but also by the

80,000 employees (Musik, Espinasa, & Walter, 2015) and secondary economic revenues

produced by the whole energy industry. Statoil –Norwegian’s NOC– itself, permanently

employs more than 30,000 people around the world from which 20,000 work in Norway

(Statoil, 2013).

Surprisingly to some scholars, the Norwegian hydrocarbons industry (oil and gas) has played

a vital role in accomplishing an advanced democratic stage through the means of economic

development and a successful transfer of the income into social benefits for the population,

in which the combination of democracy and oil turned out to be positive for the society,

tendency not common among the oil producers in the world. Table 2 shows the Top World

Oil Producers for 2014 (U.S. Energy Information Administration, 2015) sorted by level of

democracy, in which Norway leads the classification and where only one third of the listed

countries are considered a kind of democracy, Mexico is last in the reduced group.

Michael Ross (2001) concludes in his study that “the oil-impede-democracy claim is both

valid and statistical robust […], the harmful influence of oil is not restricted to the Middle

East […], nonfuel mineral wealth also impedes democratization [… and that] there is at least

tentative support for three causal mechanisms that link oil and authoritarianism: a rentier

effect […], a repression effect […] and a modernization effect”. The statistical conclusion

45

reflects a general trend on states worldwide with oil discoveries, but does not assess each

case individually and even less considers the specific historical conditions that shaped the

domestic and foreign policy of each state. In a similar way Kevin Tsui (2010) finds that

“discovering 100 billion barrels of oil (approximately the initial endowment of Iraq) pushes

a country’s democracy level almost 20 percentage points below trend after three decades”,

assumption that does not fit the Norwegian case since its democracy level has been

maintained unchanged for more than three decades after the Ekofisk field discovery –event

that occurred more than forty years ago–. In his second finding, Ross adds “other minerals”

to the cause of democratic hindering, however, this opens a gap for analysis on whether any

natural resource can obstruct democracy or if there is a restriction only for minerals; in any

case, democracy has usually been threatened by the willingness of control over resources of

any kind, not only oil. Finally, the study discloses that it “is consistent with the observation

that large oil discoveries appear to have no discernible antidemocratic effects in advanced

industrialized states, such as Norway, Britain, and the U.S., but may harm or destabilize

democracy in poorer countries” (Ross, 2001). This deduction adds a variable to the equation:

advanced industrialization. However, economic historians (Hodne, 1983; Bruland, 1989)

consider that the rapid growth in the profitable oil sector during the 70s was a reason25 for a

Norwegian large-scale deindustrialization. High oil prices from 1973 to 1985 generated a

less competitive foreign sector triggered by greater labor costs due to an increase in the

petroleum sector wages. Then if industrialization is the component that prevents a decrease

in a state’s democratic progress provoked by oil, how can oil foment as well its

deindustrialization? In the other side, Jones and Weinthal (2010) consider that oil revenue

states are cursed not by their black gold discoveries but, rather by the model their

governments choose to follow and that weak institutions are not inexorable for those states.

Their assessment is made after the experiences in the oil administration and management of

five petroleum rich post-Soviet states, collecting data that reflects completely different sector

performance depending on the institutions that carry out the hydrocarbons industry

operations. Even more, Brooks and Kurtz (2013) have recently contended that “democracy

and oil revenue are endogenous to the industrialization processes itself, particularly in its

25 Other effects such as the Dutch Disease, inflation related to wage increase and oil price are far beyond the

scope of this chapter. See Eifert, Gelb, & Tallroth, (2002) for detailed research on the topics.

46

developmentalist form […] (and) conclude that oil wealth is not necessarily a curse, and may

even be a ‘blessing’ with the respect to democratic development”. The approach taken here

is more likely to suggest a pertinent model to administrate and manage oil under appropriate

institutional circumstances, therefore what was the Norwegian policy that allowed the Nordic

country to acquire the oil blessing?

Ola Grytten –Norwegian economist historian– comes to the conclusion that “an educated

work force, the adoption of advanced technology used in other leading countries, stable and

reliable institutions, and democratic rule” were the decisive factors that turned resource

abundance into economic prosperity in Norway (Grytten, 2008). This inference is closer to

Governor Olsen’s words which summarize the key points that delivered success to Norway

and highlights the “democratic” layout of the action plan:

“From the end of the 1990s to 2013, the price of North Sea oil rose from about

USD 10 to over USD 100 per barrel. High oil prices and a profitable petroleum

production industry have been accompanied by record-high oil investment in

recent years. Increased spending of petroleum revenues over the fiscal budget has

provided a growth impetus to domestic demand. Employment has remained high

and unemployment low for many years, even when the financial crisis hit in 2008.

It was made clear at an early stage that Norway's oil and gas resources belong to

the Norwegian people and should be managed on their behalf. The tax system for

private and state-owned oil companies and framework conditions for the petroleum

industry were designed so that the bulk of the large resource rents generated by the

industry would accrue to the Norwegian state.” (Olsen, 2015)

In summary, Norway nowadays is considered the most democratic country, is ranked in the

first position within the U.N. Human Development Index and owns the largest pension fund

in the world (Sovereign Wealth Fund Institute, 2015). The Norwegian democratic status has

been achieved through a constitutional amendment process since its adoption in 1814 and

added to it, economic prosperity could be consolidated with the abundance of oil and its

exploitation since the 70’s decade. This advances are product of what is defined in this study

as the Norwegian Model of institutional administration of the hydrocarbons sector and its

oil-revenue management. The model utilized is a set of separated government functions

driven by three state-controlled institutions (Ministry of Petroleum and Energy, Norwegian

Petroleum Directorate and the National Oil Company Statoil) that administrate the

47

hydrocarbons sector functions plus a fourth one (Government Pension Fund Global) which

manages its revenue. Figure 8 shows the state organization of the petroleum activities and

the delimitation of the institutions that conform the Norwegian Model.

Several authors (Al-Kasim, 2006b; Thurber, Hults, & Heller, 2010; Cappelen & Mjøset,

2013; Velculescu, 2008) have studied the so-called model from different approaches

(functions separation, fund management, taxation system, licensing system) but a

condensation of the policy adapted to specific nation cases has not been resealed.

Table 3 shows the small group of democratic-considered countries within the top 25 world

oil producers, sorted by Human Development rank. Norway, the U.S. and Canada are close

in the classification within the first, fifth and eighth place out of 187; however Mexico and

Brazil are in a far 71 and 79 place respectively. As well, only this last two countries had in

their history a nationalized energy industry –which underwent market liberalization only

after the year 2000– controlled by state-owned Mexican Pemex since 1938 and Brazilian

PETROBRAS since 1953. Both countries have had a policy, regulatory and commercial

strategy dependent basically only from the Executive Power decisions, turning their strategy

authoritarian from a govern point of view. The functions separation, administered through

robust and transparent institutions seen in the Norwegian sector constitutes the aim of

inclusion for the three administrative institutions within the model. Both Mexico and Brazil

have systematically tried to import the “Norwegian Model” to their hydrocarbons sector

(Turber, Hults, & Heller, 2011; Thurber, Hults, & Heller, 2010) hoping to achieve by means

of successful industry management a socioeconomic development close to the desired

Norwegian one, specifically Mexico based the design of its 2013 Energy Policy Reform on

the Norwegian experience, reported by the Minister of Energy in 2015 (González, 2015).

Before proceeding to the brief description of the Norwegian Model institutions and its

structure presentation; it is necessary to answer a critical query: While it is clear that Mexico

and Brazil may change the approach concerning to their own oil sector; the U.S. and Canada

seem to be close to the Norwegian prestigious democracy-level standing, therefore, why not

to follow the steps of the North American countries instead of the Norwegian? The answer

supports this paper’s inclusion of the oil-revenue management policy in the so-called model,

materialized by the Government Pension Fund Global. Norway possesses the greatest wealth

48

fund in the world incepted in 1990 originated from oil (Norwegian Petroleum Directorate,

2013; Sovereign Wealth Fund Institute, 2015). The U.S. hold four funds –the oldest dating

1854 and the most recent 1976– and Canada since 1976, the Alberta’s heritage fund. Even

though the three prosperous nations have funds, Norway’s assets per capita ascend to U.S.

$171,662 while the U.S. reaches only U.S. $303 and Canada U.S. $492 (See table 4). The

great contrast between the funds values and their active years become even more scandalous

when comparing a null Norwegian government debt against the Unites States U.S. $21.6

trillion26 (U.S. Government Publishing Office, 2015) and Canada’s U.S. $806 billion debt

(Government of Canada, 2015). Even more, proposals of adopting the Norwegian Model in

the U.S. and Canada have recently been considered at least in the media; for instance, Edwin

M. Truman –senior fellow at the Peterson Institute and former U.S. Treasury Official–

recommended the replication of the now state owned funds at a federal level as it occurs in

Norway and use it in order to pay the national debt or incentive the economy (David, 2013).

In the same way, the Canadian press suggest to learn from the Norwegian Model in terms of

revenue management, pointing out the details of the fund’s value, inception date and public

debt (Ormiston, 2015).

The Norwegian Model: hydrocarbons sector administration and oil revenue

management

After the discovery of potential oil reserves in Norway during the early 60s, the challenge of

securing an agreement with the neighboring nations to determine which areas were under the

Norwegian jurisdiction was a priority topic for the administration since it was the determinant

factor for giving concessions or not to foreign companies to develop the promising industry

(in which Norway had, if not none, very few knowledge); simply put, no official territorial

delimitations meant no oil industry. The gain of national sovereignty over the natural

resources and the need of foreign technology and capital to ensure the rent exploitation of

the oil reserves in pro of the Norwegian people were basically the two pillars over which the

Norwegian hydrocarbons industry was built, which would be later reflected in its policy.

Subsequently, an agreement with Great Britain and Denmark was achieved and the first

round to grant operating concessions in the Norwegian Sea for foreign companies started. By

26 Estimated for the end of the fiscal year 2015.

49

the late 60s, with the discovery of the gigantic field Ekofisk by the Phillips Petroleum Co.,

the word potential from the Norwegian hydrocarbons industry was ripped off and with this,

the need of a national policy was in the horizon.

In 1970 a special committee was given the task to draft the organization structure that the

newly born petroleum industry should follow, three main functions were identified: the

centralized control function, the administrative function and the business function. The

revenue-management function would make its appearance later in the 90’s as a response to

the substantial income of the petroleum production in order to form the four pillars of the

Norwegian policy.

The parliamentary standing committee on industry produced in 1971 what is known as the

“10 oil commandments”; main legal basis of the oil industry and the institutions of the so-

called Norwegian Model, derived of the functions previously identified. The commandments

are crucial not only as a structural design for the sector but also as an instrument of

performance evaluation which will be assessed in the further chapters. Table 5 shows the “10

oil commandments” and its functional relation with the institutions of the model. As a

response to the increased activities during the 60s, an organizational change was conducted

by the institutional formation:

The Ministry of Petroleum and Energy (MPE) was created in 1978 as a governmental

institution to manage the hydrocarbons sector as a whole. It replaced the Ministry of Industry,

which operated the oil industry since the late 50s. The MPE sets the policy –or goals– for the

sector, its plan of action and controls the licensing system to operate in the oil sector.

The Minister of Petroleum and Energy –responsible for the policy making– is nominated by

the prime minister, approved by the parliament and appointed by the King. The position of

Minister of Petroleum and Energy has been held by members of five different parties since

its creation, reflecting a political competition and constant democratic alternation but without

a structural change banishing the ministry’s original purpose or policies focused on retaining

the ministry’s office for one party through propaganda related to the oil revenue, in fact, it is

one of the most volatile positions of the cabinet with a usual less-than-two-years period.

Specific functions of the MPE are organized into 5 departments: Oil and gas, Climate

Industry and Technology, Energy and Water Resources, Economic and Administrative

50

Affairs, and International Affairs. As a part of the Secretary General’s staff, the

Communication Unit provides background materials for the political leadership and public

in general.

Nowadays, the “Act 29 November 1996 No. 72 relating to petroleum activities”27 contains

the current legal basis of the hydrocarbons industry licensing system; process that ensures

governmental control over the national hydrocarbons industry under an open market arena

where national and international companies can participate. The MPE is the authority over

the exploration and production licenses; the approval, extension, surrender and secession of

such licenses lay under the ministry’s consideration (The Petroleum Act, 2015), and “the

principal responsibility of the Ministry of Petroleum and Energy is to achieve a coordinated

and integrated energy policy. A primary objective is to ensure high value creation through

efficient and environment-friendly management of Norway’s energy resources” (Ministry of

Petroleum and Energy, 2013).

The Norwegian Petroleum Directorate (NPD) is a regulatory and technical advisory agency

that also stipulates regulations related to resource management, conducts metering audits and

collects fees from the petroleum industry. The NPD was established in 1972 as a

governmental specialist directorate and administrative body. It reports to the MPE and its

“paramount objective […] is to contribute to creating the greatest possible values for society

from the oil and gas activities by means of prudent resource management based on safety,

emergency preparedness and safeguarding of the external environment” (Norwegian

Petroleum Directorate, 2015).

The four main functions of the NPD are: Advise the MPE through professional integrity and

interdisciplinary expertise; collect data from the Norwegian continental shelf and construct

reviews and analysis which serve as a factual basis for the activities related to the

hydrocarbons; realization of the resource potential by emphasizing long-term solutions,

upside opportunities, economies of scale and joint operations, as well as ensuring that time-

27 The Act relating to petroleum activities in force is that from the 29th of November 1996, last amended on the

27th of June 2003. The regulations to the Act relating to petroleum activities in force was declared by Royal

Decree on the 27th of June 1997, last amended on the 12th of December 2003.

51

critical resources are not lost; and together in cooperation with other authorities, to ensure

comprehensive follow-up of the petroleum activities.

As well as the MPE, the legal regulatory basis of the NPD is contained in The Petroleum Act

by Royal Decree on the 27th of June 1997, which replaced the Act of the 22nd of March 1985

that in turn replaced the original Act of the 21st of June 1963. Since 2004, the supervision of

safety and working environment was separated from the NPD and the Petroleum Safety

Authority Norway was created.

Statoil, the National Oil Company (NOC) was founded in 1972 and the reason can be well

summarized in the words of Karl-Edwin Manshaus, one of the most representative officials

of the Norwegian industry, civil servant in the Ministry of Industry –later MPE where he was

appointed deputy under-secretary–, counselor in energy affairs at the Norwegian embassy in

the U.S. and knight decorated: “We realized that we were not businessmen, and that we were

sitting on both sides of the table”; the last remark referring to the regulator and competitor

role in the industry (Thurber & Tangen, 2010).

Statoil is an international energy company that is “committed to accommodating the world’s

energy needs in a responsible manner, applying technology and creating innovative business

solutions” (Statoil, Statoil in brief, 2014). Statoil is organized in 7 business areas from which

three are in charge of development and production (Norway, international and North

America), and the others are oriented to Marketing, Processing & Renewable Energy;

Technology Projects & Drilling; Exploration and Global Strategy & Business Development.

Statoil operates in more than 40 oil and gas fields, is the world leader in the use of deepwater

technology, oil production, gas production and a market capitalization of about U.S. $85

billion.

Norwegian’s NOC finds its legal basis in the Petroleum Act in force, which indeed, sets out

the principle of its ownership by the Norwegian State, the natural resources extracted and its

revenue; as well, the approval (license) for exploration and development in the Norwegian

continental shelf depends on the MPE as any other company. Statoil’s independence of

commercial action is just affected in two ways: by decision of the parliament (which is the

representative of the majority owner of the shares) and by regulations conducted by the NPD

and MPE. “Although Statoil is majority-owned by the Norwegian State, it does not receive

52

preferential treatment with respect to licenses granted by or under any other regulatory rules

enforced by the Norwegian State” (Statoil, 2014).

The Government Pension Fund Global (GPFG) purpose is the facilitation of the State

savings to “finance rising public pension expenditures, and support long-term considerations

in the spending of government petroleum revenues” (Government Pension Fund, 2015). As

the other three institutions, the fund finds its legal basis in The Petroleum Act and the

guidelines with its supplementary provisions are subject to approval of the parliament. The

Ministry of Finances is the main responsibility holder over the fund.

The Global division28 –commonly referred to as The Oil Fund– was established in 1990 as

an apparatus to manage the substantial financial assets from the petroleum activities

especially from the 80s decade when the production increased together with a convenient rise

in the oil prices. The fund has two main purposes:“(i) act as a buffer to smooth fluctuations

in oil revenues and mitigate exchange rate pressures to avoid Dutch disease and preserve a

diversified industrial structure; (ii) save part of current oil rents to help address future needs

related to the aging population and the eventual decline in oil revenues” (Eifert, Gelb, &

Tallroth, 2002). Its mission is to ensure benefits from petroleum wealth for present and future

generations. The fund’s capital is mainly generated from taxes and fees, license rights

payments, the State’s Direct Financial Interest29 and profits from the NOC Statoil. It is the

largest public pension fund in the world (see table 4) and its guidelines demand to hold 60%

of its value in equities, up to 35% in fixed income and as much as 5% in real estate. The fund

owns more than 1% of the world’s listed stocks, its largest holdings are of government debt

and bonds issued by corporations and while in a start-up phase, it has invested in major

European cities and in the U.S. (Norges Bank Investment Management, 2015).

Figure 9 shows the graphical representation of the Norwegian Model in which the four

institutions are interrelated but with their respective independence of action. The MPE

articulates the policy and its features, the NPD regulates the sector and prepares information

28 The Norwegian Government Pension Fund is divided into two divisions: The Global and the Norway.

However, the Norway division’s capital is originated primarily from surpluses in the national insurance schemes

during the late 60s and 70s, however the petroleum activities’ revenue is managed by the Global division. 29 The State’s Direct Financial Interest in petroleum operations is an arrangement in which the State owns

interests in a number of oil and gas fields, pipelines and onshore facilities, for more information see Norway's

oil history in 5 minutes (Ministry of Petroleum and Energy, 2013).

53

for the MPE and other institutions of the governmental structure, the NOC finds its operation

in an open market sector competing with the International Oil Companies (NOCs) and finally

the GPFG manages the revenue as a working capital for investment. The Parliament

(representing the voice of the society) is located in the middle of the model as a basis where

the power that every single institution possesses emanates from the will of the people. The

separation of functions in special with the NOC provides competition, integrity and

transparency to offset corruption, underdevelopment and authoritarianism that could result

into an economic/democratic stagnation.

Figure 10 shows the flowchart of the model, where the MPE together with the NPD

administrate an open market sector where both Norway and the international community get

benefitted. The interchange of capital, technology, educated work force and so on for licenses

to profit from the Norwegian offshore have helped to develop the whole industry; and at the

same time, have made Statoil (NOC) a strong world-class competitive company. The IOCs

obtain profits from the Norwegian resources but also the state shares a proportional piece of

the income by means of fees, taxes, and other quotas. This governmental ability to implement

a win-win commercial situation is one of the elements of the success experimented by the

model. Finally the state’s income is used in both the national budget and as an invested capital

(profitable savings) by the GPFG. In this way, the cycle starts with the democratic decision

of the people when electing the representative parliament, then the parliament empowers the

institutions that will afterwards plan and implement the industry’s policy, preparing the arena

for a free market competition. In this way, the agenda is to not only generate wealth from oil

trade but also to generate wealth in terms of development of a whole industry. Finally, that

wealth is successfully transmitted to the citizens.

Conclusion: evaluating the Norwegian experience

A system can be (or not) considered successful through the proper evaluation of the results

and, in the case of a national industry policy implementation to manage resources, it is

mandatory to consider the actions taken by the government and the society through the

process. The query whether the path followed to achieve the policy objective really matters

even if the outcomes are positive is especially significant in the case of natural resources

because of the human rights violations, environmental large-scale damage and international

54

violent disputes that have been characteristic of these processes. In the specific case of oil,

clear evidence of the challenges that the relation democracy-oil has faced is found as the

support for the studies mentioned before conducted by Tsui (2010) and Ross (2001).

The mentioned issues together with the macroeconomic fallouts help appraising in a richer

perspective the 10 Oil Commandments from 1971 that figured as the initial plan for the

growing and promising Norwegian hydrocarbons industry 44 years ago; looking for a

profitable industry exploitation but aware of the domestic, environmental and international

challenges within a democratic framework.

The policy direction by the MPE and the regulatory function of the NPD have ensured both

supervision and control for the operations in the Norwegian Continental Shelf (NCS). The

Petroleum Act in force states clearly that there will be no activity in the NCS without the

authorization of the MPE through a license prior examination of the NPE and other

institutions that are involved into the process. It is clear not only the involvement of the

government in the industry but its control in accomplishing the first commandment.

The second commandment demanded the Norwegian independency from foreign crude oil.

Back in the early 80s, Norway had not only reached the goal but as one of the Top 15 World

Oil Exporters (U.S. Central Intelligence Agency, 2015).

Four institutions, self-oil supply, oil wealth, technological development, pipeline

transportation and around 400,000 employees constitute the Norwegian petroleum industry,

one of the most valuables in the world, as it was foreseen by the third commandment. As

conveyed by academic Helge Ryggvik, oil is Norway’s most important industry.

Norway considers a potential negative scenario basically shaped by economic risks and

environmental risks in line with this commandment. The economic risks are linked to the

main factors that enhanced the Norwegian economic growth: oil prices and petroleum

production. Oil price dramatically dropped from U.S. $111.9 per barrel in June 2014 to U.S.

$48.1 per barrel in January 2015; in less than a year the price lost more than half its value

apparently related to the market forces. In the other hand, the Norwegian Petroleum

Directorate (2013) forecasts a decline in the sale of petroleum and in the oil production –

undiscovered resources, resources in discoveries, resources in fields and reserves– versus an

increase in the gas sales. Environmental risks have also been widely discussed (Hertwich,

55

Aaberg, Singh, & Strømman, 2008; Gundlach & Hayes, 1978; Kaltenborn, 1998) and both

the public and private sector are aware of the consequences given by a non-regulated oil

production with potential environmental harmful techniques. The Centre for Renewable

Energy is one of the many responses to the need for renewable energy in which the

Norwegian University of Science and Technology in Trondheim, the SINTEF Group, the

Institute for Energy Technology and the University of Oslo work together for the aim of

“increasing the quality, efficiency and scope of education, research, development and

innovation within renewable energy in Norway” (Centre for Renewable Energy, 2011). As

well, the Norwegian Minister of Finances announced in 2014 that “Norway’s $860 billion

oil fund should scale up its investments in renewable energy and weigh the risk to future

returns posed by climate change” (Knudsen & Fouche, 2014). This last statement materialize

the objective of the fourth and fifth commandment that consider account of existing industrial

activities and the protection of nature and the environment from exploitable gas for instance.

The GPFG has also successfully responded in cushioning the recent world financial crisis by

prompting the national economy in terms of low unemployment and GDP growth making

use of its vast reserves pumping capital to the national market when needed.

About the six commandment, the NPD declares the following:

“This proved a difficult commandment to fulfil. The oil and gas pipelines for (the)

first two developments on the NCS, Ekofisk and Frigg, had to go to Germany and

the UK, with landfalls at Emden, Teesside and St Fergus. This was because the

deepwater Norweian Trench lies between the fields and mainland Norway. So

crossing this feature in 360 metres of water with the Statpipe gas line during the

early 1980s marked a major breakthrough. That installation went to Kårstø north

of Stavanger. Later gas pipelines have come ashore at Kollsnes, Nyhamna,

Tjeldbergodden and Melkyøa, while oil lines run to Sture and Mongstad. A

network more than 7 000 kilometres long gives Norway the world’s largest

underwater gas transport system.” (Norwegian Petroleum Directorate, 2010)

As can be seen in table 2, Norway is among the Top World Oil Producers for 2014, as well

it is the largest oil and natural gas holder/producer of Europe; for the year 2012, the

Norwegian energy industry products –crude oil, natural gas, and pipeline transport services–

represented 52% of Norway's exports revenues. The country’s leading role regarding to

hydrocarbons was anticipated by the seventh commandment.

56

The eight commandment was attained in 1972 with the foundation of Statoil and its operation

within an open market industry. The state’s commercial interests have been well fulfilled and

prove of that is the assets related to oil-revenue that are used in the national budget. The

Statoil’s world class profile due to the asserted administration and international cooperation

has positioned this NOC as a real competitor in more than 40 oil and gas fields, it is the world

leader in the use of deepwater technology, oil production, gas production and has a market

capitalization of about U.S. $85 billion.

Foreign policy was an issue considered by the officials who reflected their concerns on the

ninth and tenth commandment. The history of conflicts has been determined by the

possession of resources, being oil one of the most precious commodities of the recent

centuries, the urge for establishing from the beginning an approach for the relations to come

with neighboring states was a priority for the assembly. Once the existence of oil in the

vicinity of Norway was proven and before any license for exploration and development could

be granted, the maritime boundaries shall be clearly established and signed under

international acceptance. Before the 60s, the only boundary determined after a round of

arbitration in The Hague was the agreement of 1909 which established the borders from inner

Iddefjord to the outer edge of the territorial waters that concerned Sweden and Norway. In

1965, the agreement on the border between Norway and Great Britain (north from the border

with Denmark to latitude 62° 44' 12” north) was signed and later that year Denmark as well

signed after negotiations that solved to follow the same approach between Norway and Great

Britain of the median line principle for the division, in the following years new disputes were

conducted by Great Britain regarding the extension of the 1965 agreement yet consensus was

fairly quickly gained. However, the negotiations with the Soviet Union and later Russia did

not go as smooth as with the other nations since a boundary line agreement could not be

reached before 2010, ending a 43-year-old dispute which started in 1967 with the first

approach of both nations. The discussion was intense but gradually moved from a unilateral

Soviet standpoint of no-negotiation over the 1926 Soviet Union declarations in the First All

Union Census of the Soviet Union –that conceded sovereignty over the North Pole between

the meridians at longitude 32° 04' 35" east and through the Bering Straits at longitude 168°

49' 30" west–, passing through the 1978 agreement on the “gray zone”, the 1982 signature of

the UNCLOS (United Nations Convention on the Law of the Sea) and finally in the 90s, the

57

settlement of using the WGS84 geodetic datum to determine the boundaries which would led

to the definite solution in 2010 (Harsson & Preiss, 2012). Consequently, the pattern of

activities on the north of the 62nd parallel (See figure 11) and the handling of the foreign

policy regarding its boundaries as well as the operations control of the industry discussed in

the first points resulted in a successful completion of the last two commandments.

Therefore, the execution of the 10 Commandments established in 1971 for the Norwegian oil

industry have been successfully achieved and completed with the agreement on the

boundaries with Russia in 2010.

The evaluation through this instrument results positive in every aspect and worth to be said,

with no major international armed conflict or an authoritarian spectrum during the policy

implementation risking the democratic status in Norway; in other words; the domestic,

environmental and international challenges were faced in a frame of peace and justice.

International consensus in the democratic development is reflected on the indexes evaluation

and if well the Norwegian democracy is not a result of its oil management, a clear legal basis

orchestrated by a well-designed four institutional system (Norwegian Model) under

democratic principles facilitated the consolidation of the already established democracy by

means of successful oil-revenue transference to the citizens through a social agenda resulting

in the disruption of a generalized trend in the equation “more oil, less democracy”.

As a result, efficiency in every stage of the chain; exploring, extracting, producing, selling

and delivering with the less resources employed in the less possible time contemplating the

maximum value for the customer and the company by means of technological advances and

professionalization of the human resources within an environmental conscious framework

even looking for the utilization of renewable energies over oil. Once the Norwegian Model

has proven to provoke a positive impact in the country’s democracy, what can Mexico learn

about it? Could it serve as a model to adapt an eventual Mexican policy reform?

President Peña Nieto’s administration believes so.

58

CHAPTER 3. HINDERING OR ADVANCING DEMOCRACY?

The 2013 Mexican Energy Policy Reform

On December 18th 2013, a presidential decree modified the articles 25, 27 and 28 of the

Constitution through the amendment and addition of relevant paragraphs (with its respective

transitional articles) in terms of energy policy, especially in regards to the Pemex monopoly.

The strategy change is based on the Democratic System of National Development Planning,

defined by the Constitutional article 26, which attempts to integrate all the governance

policies within a long-run approach, through a democratic and deliberative design,

highlighting the society participation, towards the socioeconomic development of the

country. The Constitutional articles related to the 2013 Energy Policy with its historical

record of amendments and/or additions (original and self-translated to English) are included

in the Appendix I for their further consideration.

A proper evaluation cannot be based on assumptions, suppositions, allegations, beliefs,

specific historical interpretations or particular interests because they cause distortions and

confusions without accurate fundaments. Therefore, in the case of a governance policy, a

strict adherence to the law provides certainty when appraising a reform, under the legal

support of the Constitution. The following points stress the key measures implemented by

the mentioned Decree:

Article 25 grants the national development stewardship to the State to guarantee that it is

integral and sustainable, that it strengthens the National Sovereignty and its democratic

regime and that it allows the full exercise of freedom and the dignity of the individuals,

groups and social classes.

The 2013 Decree introduced the following:

- The public sector will have to its charge exclusively the exploration and extraction of

petroleum and other hydrocarbons considered within the strategic areas.

- The Federal Government maintains always the property and control of the organisms

and PCS.

- The planning and control of the exploration and extraction of petroleum and other

hydrocarbons will be task of the State.

59

- The law will establish the norms relative to the administration, organization,

functioning, hiring procedures and other juridical acts that the PCS performs, as well

as its personnel remunerations, to guarantee its efficiency, honesty, productivity,

transparency and accountability, based on the best practices, and will determinate the

other activities to perform.

- The PCS will be able to participate by itself or with the social and private sectors,

according to the law, to boost and organize the priority areas for the development.

- Under criteria of social equity, productivity and sustainability, the companies of the

social and private sectors of the economy will be supported and boosted, holding to

the modalities that the public interest renders and to the usage, in general benefit, of

the productive resources, taking care of the conservation and the environment.

- The law will encourage and protect the economic activity performed by the

individuals and will supply the conditions for the private sector development so this

can contribute to the national economic development, promoting the competitiveness

and implementing a national policy for the sustainable industrial development that

includes sectorial and regional facets, in the terms that this Constitutions establishes.

Article 27 establishes the State’s property over the natural resources within the national

boundaries and its right to transmit the domain to individuals, constituting the private

property.

The 2013 Decree introduced the following:

- National domain over the petroleum and other hydrocarbons is inalienable and

indefeasible, the usage or the utilization of the resources mentioned, by the

individuals or by societies constituted under the Mexican laws, will not be performed

unless through concessions, granted by the Federal Executive, according to the terms

and conditions established by the law.

- The legal norms relative to mineral and substances exploitation will regulate the

execution and verifications of those performed starting from their validity,

independently of the concessions granting date, and its non-obedience will be led to

its cancelation.

60

- Regarding to the petroleum and the solid, liquid or gaseous hydrocarbons, in the

subsurface, the property of the Nation is inalienable and indefeasible and exceptions

will not be granted. With the aim of obtaining income for the State to contribute to

the long-run development of the Nation, it will conduct the activities of exploration

and extraction of petroleum and other hydrocarbons through assignations to the PCS

or through contracts with these or with particulars, under the Regulatory law terms.

- In order to accomplish the objective of the petroleum and other hydrocarbons

operation assignations or contracts, the PCS may engage with particulars.

- The hydrocarbons in the subsurface are property of the Nation, fact that should be

included in the assignations or contracts.

Article 28 prohibits monopolies, monopolistic practices, estancos30 and taxes exemptions;

but excludes the State functions in certain areas such as the petroleum and other hydrocarbons

exploration and extraction.

The 2013 Decree introduced the following:

- The State will feature a central bank that will be autonomous in the practice of its

functions and in its administration. Its priority objective will be to ensure the stability

of the purchasing power of the national currency, strengthening with it the mandate

of the national development corresponded to the State.

- No authority will be able to order the bank to supply financing.

- The State will feature a public trust denominated Mexican Fund of Oil for the

Stabilization and Development, which Trust Institution will be the central bank and

will have as its objective, in the terms applied by the law, receive, administrate and

distribute the income derived from the assignations and contracts referred in the

article 27 paragraph 7, except taxes.

- The Executive Power will feature the regulatory institutions coordinates in energy

policy, denominated Comisión Nacional de Hidrocarburos (CNH) [National

Commission of Hydrocarbons] and Comisión Reguladora de Energía (CRE) [Energy

Regulatory Commission], under the terms determined by the law.

30 The term estancos in law refers to the embargo, withholding or prohibition of the free trade course of certain

goods to reserve exclusively them with the purposes of regulating prices. (Real Academia Española, 2015)

61

As well, the following features included in the Transitory Articles of the Decree are relevant

for the energy policy, the article number is listed in brackets:

- Within two years after the Decree publication, Pemex should be re-structured

changing from being a decentralized governmental organism to a PCS (III).

- The State should regulate the following schemes of compensation (among others): in

cash for the services contracts, as a percentage of the profits for the shared profit

contracts, as a percentage of the production for the shared production contracts, with

the onerous transmission of the hydrocarbons once they have been extracted from the

subsurface for the licensing contracts and/or any combination of the previously

mentioned (IV).

- The ministry in charge of energy affairs with the technical assistance of the CNH will

grant the assignations, licenses and concessions to the PCS, particulars and a mixture

after a rigorous examination of its financial and technical possibilities (VI, VII).

- The contracts between the State and the PCS, particulars and a mixture will account

transparency clauses so any interested could consult them, a system of external audits

to supervise the expenditures incurred in the contract process and will be published

(IX).

- The ministry in charge of energy affairs will establish, conduct and coordinate the

energy policy; will adjudicate the assignations and delimitate the operation areas

subjected to the contracts with the technical assistance of the CNH as well as the

technical design of the contracts and the technical terms of the tendering processes;

will grant permissions for the treatment and refinement of petroleum and gas (X).

- The CNH will give technical assistance to the Ministry, collect geological and

operational information, authorize superficial exploration, conduct tendering

processes, assign the benefited participants, sign the exploration and extraction

contracts, administrate the assignations and contracts in its technical issues, supervise

the extraction plans to maximize the field productivity over the time and the

regulation of the hydrocarbons exploration and extraction (X).

- The CRE will grant permissions for storing, transporting and distributing the

hydrocarbons and the regulation for accessing and selling the mentioned services, as

well as the port tariffs for transmission and distribution (X).

62

- The ministry in charge of the financial affairs will establish the economic conditions

of the tendering processes and the contracts related to the fiscal terms which may

allow the State to obtain enough income that contributes to its long-run development

(X).

- The FMPED31 will receive all the income relative to the hydrocarbons industry

derived from the assignations and contracts established in the article 27, except for

the concept of taxes and will be distributed as follows (XIV):

A share of the income will be transferred to the Department of the Treasury,

contributing with the national budget in 4.7 percent of the GDP (as observed

in 2013).

A share of the income will be assigned to the respective funds for

hydrocarbons extraction, research in the hydrocarbons field, energetic

sustainability and petroleum taxation.

A share of the income will be destined to the long-run savings, including

investment in financial assets.

- In the case that the savings represent or exceed a 3 percent of the previous year GDP,

the fund technical committee will be able to destine resources to the fields of universal

pension; science, technology and innovation in sustainable energy; and scholarships

for the human capital formation in the field with a limit of 10 percent of the total

increase observed. In the case of petroleum projects and industry infrastructure the

limit will be 30 percent of the total increase observed (XIV).

- In the case of a GDP deceleration, substantial oil prices drop or decrease in the oil

production platform; and after the complete usage of the stabilization fund, the

parliament may approve the usage of the long-run savings to counteract the deficit in

the national budget (XIV).

- The FMPED will be subject to transparency obligations and should publish quarterly

its financial results and the resources destination (XIV).

- The Executive Power will include in the National Program for the Energy Sustainable

Usage a transition strategy to promote the use of cleaner technologies and

combustibles (XVIII).

31 For more information on the regulations, see the FMPED Law (Ley del Fondo Mexicano del Petróleo, 2014).

63

- The Agencia Nacional de Seguridad Industrial y de Protección al Medio Ambiente

de Sector Hidrocarburos (ANSIPMASH) [National Agency of Industrial Safety and

Environmental Protection of the Hydrocarbons Industry] will be created (XIX).

- The PCS should (XX):

Possess budget autonomy and be only subject to their financial results and

particular services that the congress approves.

Be operated under a world-class corporative structure, organization and

administration; with technical and management autonomy and a governance

organisms allowed to define its institutional assembly.

Be managed by an administration council formed by 5 governmental official

counselors, including the minister in charge of energy affairs and 5

independent counselors.

- The law will prevent, investigate, identify and sanction severely to any individual,

company, public servant or institution involved in the energy sector that incurs in acts

or omissions against the law, included (among others) the influence in an official

servant, employee or council of the PCS for personal economic benefits (XXI).

As a part of the Secondary Legislation in Energy Affairs derived from the Decree, on the 11th

of August 2014, the Mexican Petroleums Law (2014) was published. The following

constitutes the most relevant advances in the organic structure of Pemex:

- Pemex is a PCS, exclusively property of the Federal Government with legal

personality, own assets, and technical, operational and managerial autonomy (A-2).

- Pemex aims to the development of economic, industrial and commercial activities

creating economic value and profitability for the Mexican government as its owner;

operating in a transparent, honest and efficient manner with a sense of fairness and

social and environmental responsibility to ensure improved productivity in order to

maximize the oil-revenue and thus contribute to the national development (A-4).

- Pemex may operate by its own or in agreement with other companies, both State

or/and private companies (A-6); and can only operate under the authorization of the

CNH (A-8) and will be directed and administered by an Administration Council and

a General Director respectively (A-12).

64

- The Administration Council is the supreme organ in the Pemex administration and

will be in charge of designing its policy, guidelines and strategic vision (A-13).

- The Pemex business plan will be elaborated and updated with an horizon of five years

containing at least its objectives, guidelines and opportunities of business; the main

commercial, financial and investment strategies; a diagnosis of its financial and

operational situation as well as results and behavior indicators; and the principal risk

scenarios (A-14).

- The Administration Council will be integrated by ten members, the Minister of

Energy Affairs, the Minister of the Treasury, three federal counselors appointed by

the Executive Power and five independent counselors appointed by the Executive

Power and ratified by the Senate (A-15).

- The independent counselors will serve for five years with the option of an additional

period (A-22); and the federal counselors could be removed at any time by the

Executive Power (A-23).

- The General Director will be in charge of the management, operation, performance

and execution objectives, complying with the strategies, policies and guidelines

approved by the Administration Council (A-46) and will be appointed by the

Executive Power (A-47).

- The monitoring and auditing of Pemex will be performed by an internal and an

external auditor (A-50), being the later appointed by Administration Council (A-57).

- The Pemex employees will be paid according to equivalencies in the industry (A-73)

and non-union-affiliated workers hiring will be performed through a vacancy

publication-applications process, based on the Pemex efficiency vision (A-74).

- The Ministry of the Treasury will decide together with the FMPED, based on the

annual reports, the amount of Pemex contributions to the State (A-97).

- Pemex may appeal to the internal and/or external capital and money markets for

financing its operation (A-106).

- Pemex will be subject to the transparency, information access and anti-corruption

laws in force (A-109).

65

Constructing a χEPR as a point of comparison

Underpinned by the hypothesis that a policy tailored with the Norwegian Model

characteristics and an appropriate adaptation to the study case circumstances would result in

similar socioeconomic outcomes and therefore positive democratic development, the

elaboration of a model –referred to as χEPR– derived from the results obtained along this

research will suppose a liable point of comparison to determine the democratic range and

impact of the Energy Policy Reform promoted by President Peña Nieto.

The Method of Difference, formulated by John S. Mill (2011) after the concepts of agreement

and difference, is utilized to determine the causal mechanisms that provoked the dissimilar

outcomes between the Norwegian and the Mexican cases, as a first step towards the

construction of the so-called χEPR. The analysis conduction is based on the premise of

homogeneity between the cases (countries) under two criteria: oil recovery/discovery (in the

case of Mexico the recovery through the 1938 expropriation and in the case of Norway the

Ekofisk field discovery of 1969) and a democratic-kind regime during the oil

recovery/discovery event, according to the Polity IV classification. The independent variable

is identified as the presence of oil and the dependent variable is determined by the particularly

different democratic development outcome founded on the concept of democracy given by

Huber, Rueschemeyer, & Stephens (1997). Ross (2001) and Tsui (2010) investigations

provide support to the variables’ relationship thesis of oil impacts democracy. According to

the method, since the independent variable is constant in both cases but the dependent

variable differ, the causal mechanisms of the divergent outcomes reflect the differences

between the policies adopted by the countries according to the research design. Figure 12

shows the research design.

The variables tested are divided into five concepts; the first one to confirm that oil is a

relevant factor in the countries’ economies so the democratic outcome can be linked to it,

otherwise could only represent a collateral effect; the second intends to observe whether the

negative outcome in Mexico can be related to a violent social or political event that would

disqualify oil as a causal factor; finally, the last three are related to a direct comparison with

the Norwegian Model and its characteristics. Worth to be said, the dissimilar initial

conditions between the cases –such as an already Norwegian developed democratic system

with strong and efficient institutions, positive experience of the state participating in national

66

industries, low dependence on oil, advanced scientific research institutions and a high

educated population– are not discharged but instead seized to adapt the governance strategy;

locating it within an appropriate framework for the case studied, assuming that a correct

policy implementation could revert the negative correlation between oil and democracy

regardless the starting circumstances as Jones and Weinthal (2010) describe, a different

approach would mean indeed that no oil-revenue country without the Norwegian initial

characteristics could look after similar positive democratic results. The dichotomic

evaluation is shown in the following frame:

The results propose a series of measures that shall be present under two fundamental

conditions as a starting point in the successful model implementation: institutional functions

1. Oil relevance for the national economy – Value of the oil

rent.

a. As a percentage of the GDP over the OECD

average.

b. States within the top 15 world oil producers.

2. Recent coup d'état – Organized and sudden attempt of a

group to take over the power violently in the last 20 years.

a. Military rebellion.

b. Popular uprising taking control of the government.

3. Openness of the oil market – NOCs and POCs in the oil

market.

a. Legislation regulating a licensing/concession

system open to NOCs and POCs.

b. National and international players.

4. Separation of institutional functions – Norwegian Model of

industry administration.

a. Policy directed by the government.

b. Regulation/administration performed by

independent organisms.

c. Revenue management by a separated institution.

5. Independent NOC – Role of the national oil company.

a. Established to look after commercial interests.

b. Appropriate collaborative operation with other

national and international companies.

c. Administration and budget autonomy.

Potential causal mechanisms Norway Mexico

67

separation (centralized control function, administrative/regulatory function, business

function and revenue-management function) and industry openness to private investment and

companies’ competition through a licenses and concessions system. Yet, a direct

transmission of the Norwegian actions cannot be done. As pondered by Al-Kasim (2006b),

“many aspects of the Norwegian experience can be helpful to developing countries; but only

if carefully adapted to local conditions and aspirations”, therefore a χEPR would not be

feasible without an appropriate historical framework and the current circumstances32

consideration. In this case, the three negative factors identified in Chapter 1 are considered

in the policy elaboration, summarized in strategies to undermine the corruption and

uncompetitiveness inside Pemex and in the industry as a whole.

The following schemes represent the conclusion of the research towards the elaboration of a

χEPR in order to compare it with the 2013 Energy Policy Reform implemented by the

President Peña Nieto’s administration:

The policy control institution may:

1. Be operated under a clear and concise directed strategy of non-oil deficit, integrated to a

long-run national project in agreement with other public policies.

2. Be operated under a vision of industrial efficiency, promoting diversity among the

competitors in benefit of the companies and the consumers, towards revenue generation

with own technology development and complete respect for human rights and the

environment (philosophy instrumented by the administrative/regulatory institution).

3. Ensure the national sovereignty ruling clearly on the operation of the companies and

securing the national property of the natural resources.

4. Be a strong institution (Ministry) working in benefit of the population over political or

individual interests, in which no mattering the party affiliation, the actors work under a

transparent, reliable and professional engagement.

5. Operate with no distinction between the NOC and the other companies to generate fair

and real competition, benefiting the development of the companies and the industry as a

32 Even though the globalization process to which every country is subject to demands cogitation for both

national and international conditions in the structuration of governance policies; the analysis of the oil prices,

international market behavior, conflicts in the Middle East and East Europe and even the influence of the dollar

increased strength related to the U.S. economy positive results, are beyond the scope of this study and further

research may be conducted in a basis of macroeconomic influence into the national politics.

68

whole; under a taxes, fees and rights rates clear and mutually valuable strategy promoting

direct communication and a win-win relationship between the players and the

government.

The regulation/technical advice institution may:

1. Be independent but work in coordination with the centralized control institution to

provide interdisciplinary expertise, give technical advice and perform the administrative

tasks derived from its policy.

2. Compile relevant data, overview and analyze it to assist the players involved in the

industry taking supported decisions.

3. Set frameworks, stipulate regulations related to human rights, security, training and

environment, conduct metering audits and establish a strategy for securing the domestic

supply of resources.

The commercial institution (NOC) may:

1. Be constituted as a commercial entity without governmental intervention in its business

management, under a board of directors that respond to the government only in its role

as majority shareholder.

2. Define a commercial plan with the main objective of efficiently producing to obtain the

most profit considering the regulations and capital available.

3. Investment in the professionalization of employees through accountability provisions,

merit-based promotions, continuous education and ethical behavior.

4. Transparency in its operation, public reporting of financial and operational results as well

as accountability to the parliament (representing the citizens) as major shareholder.

5. Continuous auditing and testing of the administrative and operational bodies.

6. List shares in the public stock to obtain financing, but ensuring that the percentage offered

does not jeopardize the State’s ownership of the company.

7. Be encouraged to work in cooperation with other companies.

The revenue management institution may:

1. Be explicitly listed as property of the population with savings for future issues and

economic stabilization means.

69

2. Manage income obtained from government cash-flow from the hydrocarbons sector

operation and return on capital from the assets, without political or individual interests

under a transparent administration with financial and administrative reports publication.

3. Aim for a 4 percent real rate of return by “maximizing financial returns with moderate

risks […] (reflecting the) limit for the government’s ‘structural’ non-oil deficit” (Lücke,

2010).

4. Not be used to increase current social expenditures or reduce tax rates.

5. Invest assets only abroad to avoid additional demand for local goods and overheat the

national economy.

6. Invest under a long-run strategy to avoid substantial losses by speculations or economic

crises and diversify widely its assets in order not to be involved in political international

conflicts by possessing a majority share in certain companies abroad.

7. Operate under ethical guidelines that forbid investment in companies involved in human

rights violations or environmental conflicts.

The negative factors identified in the Mexican industry that obstructed the industry (through

Pemex being it a monopoly) from developing studied in Chapter 1 are presented as follows,

based on the concept of framing as described by (Souders & Dillard, 2014):

Subframe: STPRM-Pemex relationship

Problem definition: Negative relation Pemex-STPRM in terms of human capital management

and processes, non-transparency of its funds and corruptive influence within the company’s

administrative boards.

Problem source: Inclusion of the STPRM in the NOC’s board of directors, absence of

mechanisms to regulate the union and conflict of interests.

Responsibility: The federal government.

Policy Solution: The STPRM may:

4. Be excluded from the board of directors in order to have a real contract bargain where

not only the interests of the workers are honored but also the performance of the

company.

5. Be excluded from the process of recruitment and selection of workers.

6. Be forbidden to grant political support to any political party.

70

Subframe: Governmental over-trespassing in Pemex

Problem definition: The government over-controlled Pemex and involved political, social and

personal interests in the NOC resulting in systematic inefficiency for the whole industry.

Problem source: Governmental officials in the board of directors, non-administration and

budget autonomy for Pemex as a commercial entity.

Responsibility: The federal government.

Policy Solution: The governmental over-trespassing in Pemex may:

1. Be prevented through the exclusion of governmental officials from the board of

directors and only serve as the interface between the company's administrative body

and the citizens, being these last the owners of the company, not the government.

2. Be prevented through the grant of budget control freedom to the board of directors

without political intervention.

Subframe: Pemex untenable contributions burden

Problem definition: The government imposition of an exorbitant contribution rate to Pemex

hampering its development by means of a financial operation in deficit.

Problem source: Overloaded contributions burden, conception of Pemex as a cash-machine,

Pemex design of a social institution instead of a commercial institution.

Responsibility: The federal government.

Policy Solution: The Pemex obligations load may:

1. Be reduced in terms of taxes to allow investment in the company for scientific research

and technological development.

2. Be considered as a source of income for the country, not as the source of income.

3. Be decreased by transferring certain amount of the workers’ pensions granted to the

government in order to stabilize Pemex financial situation.

4. Be restructured to allow the company face its obligations (debt) without incurring into

a default.

5. Be based on a proportional tabulator related to its production. Pemex contributions

should reflect its income.

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Comparing the χEPR with the 2013 Energy Policy Reform

The signalizations are as follows: constitutional articles (A), transitional articles (TA).

Policy control

2013 Energy Policy Reform χEPR

Operation under a clear and concise directed strategy of non-oil deficit, integrated to a long-run national project

in agreement with other public policies.

Operation under a vision of industrial efficiency,

promoting diversity among the competitors in benefit of

the companies and the consumers, towards revenue generation with own technology development and

complete respect for human rights and the environment

(philosophy instrumented by the

administrative/regulatory institution).

Assurance of the national sovereignty ruling clearly on

the operation of the companies and securing the national property of the natural resources.

Operation with no distinction between the NOC and the

other companies to generate fair and real competition,

benefiting the development of the companies and the

industry as a whole; under a taxes, fees and rights rates clear and mutually valuable strategy promoting direct

communication and a win-win relationship between the

players and the government.

Directed strategy in convergence with the National

Development Plan (A-25 and 26) within a long-run

projection (TA-X).

Norms to guarantee efficiency, honesty, productivity,

transparency and accountability within the PCS as well

as sustainable industrial development under respect to the environment and human rights (A-25). Industry

openness to competition between the national and

private companies (A-27).

Special emphasis in the resources ownership of the State and its complete control over the industry (A-25, 27, 28;

TA-VI and VII).

Inter-companies engagement in benefit of the industry,

however still a difference between PEMEX and the other

companies is explicit in regards to assignations and

taxation (A-27).

Regulation/technical advice

2013 Energy Policy Reform χEPR

Be independent but work in coordination with the

centralized control institution to provide

interdisciplinary expertise, give technical advice and perform the administrative tasks derived from its policy.

Compile relevant data, overview and analyze it to assist

the players involved in the industry taking supported

decisions.

Set frameworks, stipulate regulations related to human

rights, security, training and environment, conduct

metering audits and establish a strategy for securing the

domestic supply of resources.

Creation of the CNH and the CRE as

regulatory/technical institutions to provide technical

advice and regulate the store, transportation and

distribution of the hydrocarbons (A-28).

The CNH will advise the Ministry when granting

licenses, assignations and concessions to the companies

(TA-VI and VII), will collect geological and operational

information to take decisions and will supervise the

operations (X).

Creation of the ANSIPMASH, institution in charge of

the industry safety and the environmental protection

(TA-XIX).

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Revenue management

2013 Energy Policy Reform χEPR

Be explicitly listed as property of the population with

savings for future issues and economic stabilization

means.

Manage income obtained from government cash-flow

from the hydrocarbons sector operation and return on

capital from the assets, without political or individual

interests under a transparent administration with

financial and administrative reports publication.

Aim for a 4 percent real rate of return in the investments

by “maximizing financial returns with moderate risks

[…] (reflecting the) limit for the government’s

‘structural’ non-oil deficit” (Lücke, 2010).

Not be used to increase current social expenditures or

reduce tax rates.

Invest assets only abroad to avoid additional demand for

local goods and overheat the national economy.

Invest under a long-run strategy to avoid substantial

losses by speculations or economic crises and diversify

widely its assets in order not to be involved in political

international conflicts by possessing a majority share in

certain companies abroad.

Operate under ethical guidelines that forbid investment

in companies involved in human rights violations or

environmental conflicts.

The Fund is a public trust, property of the Mexican State

(A-28 and FMPED Law A-5).

The Fund will receive all the income from the

hydrocarbons industry except for the concept of taxes

and will be subject to transparency obligations and the

publication of the financial reports (TA-XIV and

FMPED Law A-19). No mention to the political

interests.

No concrete mention in terms of return rates (FMPED

Law A-17), however investments are considered

(FMPED Law A-8).

When the reserve of the Fund is higher than the 3% of

the previous year it is possible to spend the rest in social

programs (FMPED Law A-8).

No restrictions for national investment (FMPED Law A-

8).

Risk diversification, limits for exposition to different

types of assets, long-run strategy to avoid volatility

(FMPED Law A-8). No mention related to foreign

policies.

No mention related.

Commercial

2013 Energy Policy Reform χEPR

Be constituted as a commercial entity without governmental intervention in its business management,

under a board of directors that respond to the government

only in its role as majority shareholder.

Define a commercial plan with the main objective of

efficiently producing to obtain the most, considering the

regulations and capital available.

Classification of Pemex as a PCS (A-25), still under the

government’s mandate but re-structured to change from

a decentralized governmental organism to a “more

independent” one (TA-III and Pemex Law A-2).

Economic, industrial and commercial activities approach

operating in a transparent, honest and efficient manner

with social and environmental responsibility (Pemex

Law A-4).

73

Investment in the professionalization of employees

through accountability provisions, merit-based

promotions, continuous education and ethical behavior.

Transparency in its operation, public reporting of

financial and operational results as well as accountability

to the parliament (representing the citizens) as major

shareholder.

Continuous auditing and testing of the administrative

and operational bodies.

List shares in the public stock to obtain financing, but

ensuring that the percentage offered does not jeopardize

the State’s ownership of the company.

Be encouraged to work in cooperation with other

companies.

Not yet defined.

The public reports of results are already supplied through

the Instituto Mexicano del Petróleo (IMP) [Mexican

Instituto of the Petroleum], a subsidiary of Pemex, not yet defined a parliament subpoena.

Audit and monitoring conducted by internal and external

officials (Pemex Law A-50).

Pemex may appeal to the internal and/or external capital

and money markets (Pemex Law A-106).

Pemex may operate by its own or in agreement with

other public or private companies (Pemex Law A-6).

STPRM

2013 Energy Policy Reform χEPR

Be excluded from the board of directors in order to have

a real contract bargain where not only the interests of the

workers are honored but also the performance of the

company. Be excluded from the process of recruitment and

selection of workers.

Be forbidden to grant political support to any political

party.

Governmental over-trespassing

Be prevented through the exclusion of governmental

officials from the board of directors and only serve as the

interface between the company’s administrative body

and the citizens, being these last the owners of the company, not the government.

Be prevented through the grant of budget control

freedom to the board of directors without political

intervention.

Pemex will be directed and administered by an

Administrative Council (Pemex Law A-12) in which the

STPRM has no representation or influence (Pemex Law

A-15).

Non-union affiliated workers recruitment will be based

on a process of application (Pemex Law A-74). No regulation for the union considered.

From ten members of the Administration Council, two

will be Ministers, three federal counselors and three

independent, appointed by the Executive Power (Pemex

Law A-15); the General Director as well will be appointed by the Executive Power (Pemex Law A-47).

Being Pemex a PCS, it will function with own assets and

technical, operational and managerial autonomy (Pemex

Law A-2) and it will only develop economic, industrial

and commercial activities (Pemex Law A-4).

74

Pemex untenable obligations burden

Be reduced in terms of taxes to allow investment in the

company for scientific research and technological development.

Be considered as a source of income for the country, not

as the source of income.

Be decreased by transferring certain amount of the

pensions granted to the government.

Be restructured to allow the company face its obligations

without driving towards bankruptcy. Be proportional to its production, its contributions

should reflect its income.

The Ministry of the Treasury and the FMPED will decide

about the Pemex contributions to the State (Pemex Law

A-97).

Pemex aims to be profitable to the Mexican government

as its owner and thus maximize the oil-revenue for the

State (Pemex Law A-4).

No reference made.

No reference made.

No reference made.

75

CONCLUSION: ON THE RIGHT PATH BUT STILL

GOVERNMENTAL OVER-CONTROL

Three negative factors were found in the historical development of the Mexican

hydrocarbons industry: the STPRM-Pemex relationship, the governmental over-trespassing

and the untenable contributions burden. The foregoing analytical comparison highlights the

remarkable advances that the Mexican 2013 Energy Policy Reform made towards the

formation of a Norwegian-alike model of oil industry administration. In terms of policy, the

institutional functions separation and industry openness to private investment and

companies’ competition in the framework of the National Development Plan, but with a clear

statement of the hydrocarbons as a national property, assures socioeconomic development

(by means of free market forces) and democracy and sovereignty defense (strengthening the

institutions), effects not achieved by President Cárdenas failed strategy of expropriation, that

derived in a democratic obstruction with the empowerment of the official party. Regarding

regulation/technical advice, the Reform granted authority and autonomy to a pair of

institutions with well-defined tasks to work in coordination with the Ministries in charge on

the licenses, concessions and permissions stipulated under the new legislation. Worth to be

mentioned, the ANSIPMASH, institution in charge of the industry safety and environmental

protection, promises a decrease in the many tragedies that marked the oil industry in Mexico

in the last century. The Mexican Petroleum Fund, supplies a transparent and clear

management of the petroleum resources that had historically been lost within the national

budget and used several times in ways other than the benefit of the population. Pemex

evolved from a centralized governmental organism into the new classification of PCS that

allows it to operate with economic, industrial and commercial means with administration and

budget autonomy. While undoubtedly its impact on the country’s democracy is positive,

much is still to be done in the Aztec’s land, and therefore, it is useful to draw attention to

further policy considerations, mainly in regards to the historical negative factors that

influenced the inefficient development of the industry:

STPRM

The exclusion of the STPRM from Pemex Administrative Council was a triumph both for

the NOC and the country’s democracy. Initially, the Reform considered the union to be

76

included in the administrative board, however during the 2013 negotiations in the senate, the

PAN conditioned its participation in the Reform’s approval to the PRI (union’s ally)

acceptance to discuss the STPRM permanence or not within the NOC, finally leaving it out.

Demonstrations and strike threats followed the resolution but surprisingly also the

announcement from the union about its decision to negotiate contracts with oil companies

other than Pemex (López, 2014), beneficial process in an open market both for the labor force

and the final consumer, still there is no regulation for the STPRM or the unions in general.

While a political participation from the unions is not possible to forbid (being a non-

democratic measure), further regulatory mechanisms would be helpful in order not to affect

the efficiency of the Productive Companies of the State. There should indeed exist a

counterpart in the contract bargaining to look for the workers interests but political interests

involved result harmful for the commercial means and the labor rights.

Governmental over-trespassing and contributions burden

Probably this is the most sensitive topic to deal with since most of the advances made by the

Reform are based still on an over-control of the Executive Power, said the president, that

historically has played a powerful role in the authoritarian regimes. Even if Pemex is not

anymore a decentralized governmental organism, its Administration Council is appointed

directly or indirectly by the president. It is definitely harmful that the union prevails sitting

in the managing board but the fact that its gap was filled with more presidential-appointed

officials could mean even more influence by the Executive. The same situation can be seen

in the audit/control authority (internal and external) which is also appointed by the

Administration Council and the Executive power. Regarding to the Mexican Petroleum Fund,

the “over 3 percent surplus” revenue could be spent on social programs on the discretion of

the federal government.

Much is still to be done in the Mexican hydrocarbons industry, yet the 2013 Energy Policy

Reform opened the possibility for a better future in which the Mexican citizens can achieve

a greater socioeconomic development, reverting the effect more oil, less democracy, and

therefore enjoying a higher democratic advance.

77

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A. Tables

[Continues in next page]

85

Concept 1990 1985 1980

Table 1. Norwegian macroeconomic indicators

1995 2000 2005 2010 2015 2020 3 3

Current Prices. Percentage of total labor force. Estimated. Source: International Monetary Fund (2015)

1 2 3

1 1

2

Top World Oil

Producers 2013

Scores of 8-10 correspond to full democracies, 6-7.9 flawed democracies, 4-5.9 hybrid

regimes and below 4 authoritarian regimes. Only countries categorized as “free” or “partly free” by Freedom House are covered. Scores for Russia and China are “virtual scores”. Source: Own construction based on data from the U.S. Energy Information

Administration (2014); Economist Intelligence Unit (2015); Marshall, Jaggers, & Gurr

(2014) and Campbell, Pölzlbauer, Barth, & Pölzlbauer (2014).

Norway

Russia

Saudi Arabia

United States

China

Canada

United Arab Emirates

Iran

Iraq

Mexico

Kuwait

Brazil

Venezuela

Nigeria

Qatar

Democracy

Ranking 2014

87.8

44.4

-

76.9

39.2

78.2

-

-

-

56.6

49.0

62.8

45.5

39.9

-

Full Democracy

Open Anocracy

Autocracy

Full Democracy

Autocracy

Full Democracy

Autocracy

Autocracy

Open Anocracy

Democracy

Autocracy

Democracy

Open Anocracy

Open Anocracy

Autocracy

Polity IV 2013

Democracy

Index 2014

9.93

3.39

1.82

8.11

3.00

9.08

2.64

1.98

4.23

6.68

3.78

7.38

5.07

3.76

3.18

Table 2. Top world oil producers sorted by level of democracy.

1 2

3

3

1

2 3

86

185 members of the U.N., Hong Kong and the Palestinian territories. Source: U.S. Energy Information Administration (2014); United Nations

Development Programme (2014); Economist Intelligence Unit (2015); Marshall,

Jaggers & Gurr (2014); and Campbell, D., Pölzlbauer, P., Barth, T., & Pölzlbauer, G.

(2014).

Country Index Rank

Table 3. Democratic-considered countries within the world top 25 oil

producers sorted by Human Development rank.

1 Category

Norway Very High H.D. 0.944 1

United States Very High H.D. 0.914 5

Canada Very High H.D. 0.902 8

Mexico High H.D. 0.756 71

Brazil High H.D. 0.744 79

1

Fund Assets

Table 4. Oil Wealth Funds in Norway, U.S. & Canada.

Norway Government Pension Fund

U.S. Alaska Permanent Fund

U.S. New Mexico State IC

U.S. Texas Permanent School Fund

U.S. Texas Permanent University Fund

Canada Alberta’s Heritage Fund

Assets (per capita)

882

53.9

19.8

37.7

17.2

17.5

171,662

169

62

118

54

492

1 2

Source: Own construction based on data from the Sovereign Wealth Fund Institute (2015) and

the Population Reference Bureau (2014).

Funds over $US10 billion in assets. U.S Billion. U.S. Dollar.

1 2 3

3 Inception

1990

1976

1958

1854

1876

1976

87

Commandment

Table 5. The 10 Oil Commandments produced by the Norwegian Parliament in 1971.

1. National supervision and control must be ensured for all operations on the NCS.

2. Petroleum discoveries must be exploited in a way which makes

Norway as independent as possible of others for its supplies of crude

oil.

Source: Own construction based on data from the Norwegian Petroleum Directorate (2010)

3. New industry will be developed on the basis of petroleum.

4. The development of an oil industry must take necessary account

of existing industrial activities and the protection of nature and the environment.

5. Flaring of exploitable gas on the NCS must not be accepted except

during brief periods of testing.

6. Petroleum from the NCS must as a general rule be landed in

Norway, except those cases where sociopolitical considerations dictate a different solution.

7. The state must become involved at all appropriate levels and

contribute to a coordination of Norwegian interests in Norway’s petroleum industry as well as the creation of an integrated oil

community which sets its sights both nationally and internationally.

8. A state oil company will be established which can look after the

government’s commercial interests and pursue appropriate collaboration with domestic and foreign oil interests.

9. A pattern of activities must be selected north of the 62nd

parallel which reflects the special sociopolitical conditions prevailing in that

part of the country.

10. Large Norwegian petroleum discoveries could present new tasks

for Norway’s foreign policy.

Institution Related

MPE, NPD.

NOC.

NPD, NOC.

NPD, GPFG.

MPE, NPD.

MPE.

MPE, NPD, NOC GPFG.

NPD, NOC.

MPE.

MPE.

Acronyms MPE: Ministry of Petroleum and Energy. NPD: Norwegian Petroleum Directorate. NOC: National Oil Company. GPFG: Government Pension Fund Global.

88

B. Figures

Figure 1. Most Similar Systems Design (MSSD) based

on Mill’s Method of Difference

Source: Own construction based on Mill (2011), Przeworski & Teune

(1970) and Landman (2000).

Macropolitical

unit 1 Macropolitical

unit 2

Independent

variables

Operative

variables

A

B

Explanatory/

causal

variables

Phenomenon studied

(dependent

variable)

A

B

X

Z...

No X

No Z…

Y No Y

Figure 2. Results for the 2000 federal elections in Mexico.

Source: Instituto Federal Electoral (2000)

89

Figure 3. Results for the 2012 federal elections in Mexico.

Source: Instituto Federal Electoral (2012)

Policy Regulation

Judicial Authority

Royal Tribunal

of Mining of

the New Spain (The Viceroy)

Development (College of

Mining)

Revenue (Bank of Loan)

Figure 4. Mining industry of the New Spain organization.

Source: Own construction

The King of Spain

Licensee 1 Licensee 2 Licensee n

90

-$40

-$20

$-

$20

$40

$60

$80

$100

$120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total Sales Profit before taxes, duties and contributions

Taxes, duties and contributions Net Profit

Figure 5. Pemex income statement 2000-2014.

Source: Own construction based on Pemex Annual Reports (Petróleos Mexicanos 2011; 2012; 2013;

2014; 2015).

1

Costs and expenses

including wages

1 Data given in 15.07.2015 U.S. dollars (exchange rate U.S. $1=15.74 Mexican pesos).

Figure 6. President Cárdenas-PRI government SWOT analysis during the

1938 Expropriation.

Source: Own construction

Strengths Weaknesses

Opportunities Threats

- A strong and unified union. - The constitutional articles ruling

sovereignty over the oil. - Relative political unification. - Support from the masses. - No political or social opposition. - Labor Code. - Supreme Court dictum.

- Complete oil revenue for the national budget and social programs.

- Compensation of the economic deficit.

- Generation of symbols and rituals to ingrain the PRI system to the society.

- Powerful presidency image. - Accomplish the “promise of the

revolution”. - Extra income for the state.

- Null experience administrating the sector.

- Null experience in exploration, exploitation and production.

- No funding for investment. - Non-specialized labor force. - Failed NOC management.

- Military U.S./Great Britain intervention.

- Economic embargos. - Uprisings financed by the companies. - International demand decrease of oil. - National reserves decrease.

91

Licensing system

IOC 1

IOC 2

IOC n

Open Market

Regulatory (NPD)

Parliament

(The People)

Policy (MPE)

Revenue (GPFG)

Business (NOC)

Figure 8. The Norwegian Model.

Source: Own construction

92

Fees, taxes,

NOC dividends, etc…

Open Market

MPE (policy) Savings invested

(GPFG)

Figure 10. Norwegian Model flowchart.

Source: Own construction

National Budget

NOC

Statoil

IOC 1

IOC 2

IOC n

NPD

(regulation)

-Capital -Technology -World-class

competitors -Educated labor force

-Revenue

The people (Parliament)

State’s income

93

Norway

Sweden

Denmark

Great Britain

Finland

Russia

North Sea

Norwegian Sea

62nd

Parallel North

Figure 11. Norwegian waters and 62nd

Parallel North delimitation.

Source: Own construction

Norwegian Waters

94

Figure 12. Research design based on the MSSD

Source: Own construction based on Mill (2011), Przeworski & Teune

(1970) and Landman (2000).

Norway Mexico

Constant variables

Operative

variables

- Oil discovery

- Democratic regime

Explanatory/

causal variables

Phenomenon

studied

(dependent

variable)

Democratic

development No Democratic

development

X

Z...

No X

No Z…

- Oil recovery

- Democratic regime

Independent

variable

95

APPENDIX I

Mexican Constitutional articles related to the 2013 Mexican Energy Policy with its

historical record of amendments and/or additions. Own translation.

Sources:

- Mexican Constitution (2015)

- Decreto Reforma Energética (2013)

Article 25.

Artículo 25. Corresponde al Estado la rectoría del desarrollo nacional para garantizar que éste sea integral y

sustentable, que fortalezca la Soberanía de la Nación y su régimen democrático y que, mediante la

competitividad, el fomento del crecimiento económico y el empleo y una más justa distribución del ingreso y la

riqueza, permita el pleno ejercicio de la libertad y la dignidad de los individuos, grupos y clases sociales, cuya

seguridad protege esta Constitución. La competitividad se entenderá como el conjunto de condiciones

necesarias para generar un mayor crecimiento económico, promoviendo la inversión y la generación de

empleo.

[Corresponds to the State the stewardship of the national development to guarantee that it is integral and

sustainable, that it strengthens the National Sovereignty and its democratic regime and that, through

competitiveness, the economic development and employment encouragement, and a more fair allowance of the

income and wealth, it allows the full exercise of freedom and the dignity of the individuals, groups and social

classes, which their security protects this Constitution. The competitiveness shall be understood as the set of

necessary conditions to generate a greater economic development, promoting investment and employment

generation.]

Amended paragraph DOF 28-06-1999, 05-06-2013.

El Estado velará por la estabilidad de las finanzas públicas y del sistema financiero para coadyuvar a generar

condiciones favorables para el crecimiento económico y el empleo. El Plan Nacional de Desarrollo y los planes

estatales y municipales deberán observar dicho principio.

[The state shall look after the public finances and the financial system stability to contribute to generate

favorable conditions for the economic growth and the employment. The National Plan of Development and the

local plans shall consider the mentioned principle.]

Added paragraph DOF 26-05-2015

96

El Estado planeará, conducirá, coordinará y orientará la actividad económica nacional, y llevará al cabo la

regulación y fomento de las actividades que demande el interés general en el marco de libertades que otorga

esta Constitución.

[The State will plan, conduct, coordinate and orientate the national economic activity, and will perform the

regulation and promotion of the activities that the general interest demands within the liberties frame that this

Constitution grants.]

Al desarrollo económico nacional concurrirán, con responsabilidad social, el sector público, el sector social y

el sector privado, sin menoscabo de otras formas de actividad económica que contribuyan al desarrollo de la

Nación.

[To the economic development will concur, with social responsibility, the public sector, the social sector and

the private sector, without impairment of other economic activities that contribute to the development of the

Nation.]

El sector público tendrá a su cargo, de manera exclusiva, las áreas estratégicas que se señalan en el artículo

28, párrafo cuarto de la Constitución, manteniendo siempre el Gobierno Federal la propiedad y el control

sobre los organismos y empresas productivas del Estado que en su caso se establezcan. Tratándose de la

planeación y el control del sistema eléctrico nacional, y del servicio público de transmisión y distribución de

energía eléctrica, así como de la exploración y extracción de petróleo y demás hidrocarburos, la Nación llevará

a cabo dichas actividades en términos de lo dispuesto por los párrafos sexto y séptimo del artículo 27 de esta

Constitución. En las actividades citadas la ley establecerá las normas relativas a la administración,

organización, funcionamiento, procedimientos de contratación y demás actos jurídicos que celebren las

empresas productivas del Estado, así como el régimen de remuneraciones de su personal, para garantizar su

eficacia, eficiencia, honestidad, productividad, transparencia y rendición de cuentas, con base en las mejores

prácticas, y determinará las demás actividades que podrán realizar.

[The public sector will have to its charge, exclusively, the strategic areas mentioned in the article 28, fourth

paragraph of the Constitution, maintaining the Federal Government always the property and the control of the

organisms and productive companies of the State that in each case are to be established. Regarding the planning

and control of the national electric system, and the transmission and distribution public service of electric

energy, as well as the exploration and extraction of petroleum and other hydrocarbons, the Nation will perform

the mentioned activities in terms of the established in the sixth and seventh paragraph of the article 27 of this

Constitution. In the cited activities the law will establish the norms relative to the administration, organization,

functioning, hiring procedures and other juridical acts that the productive companies of the State perform, as

well as its personnel remunerations, to guarantee its efficiency, honesty, productivity, transparency and

accountability, based on the best practices, and will determinate the other activities to perform.]

Amended paragraph DOF 20-12-2013

97

Asimismo podrá participar por sí o con los sectores social y privado, de acuerdo con la ley, para impulsar y

organizar las áreas prioritarias del desarrollo.

[As well, will be able to participate by itself or with the social and private sectors, according to the law, to boost

and organize the priority areas for the development.]

Bajo criterios de equidad social, productividad y sustentabilidad se apoyará e impulsará a las empresas de los

sectores social y privado de la economía, sujetándolos a las modalidades que dicte el interés público y al uso,

en beneficio general, de los recursos productivos, cuidando su conservación y el medio ambiente.

[Under criteria of social equity, productivity and sustainability, the companies of the social and private sectors

of the economy will be supported and boosted, holding to the modalities that the public interest renders and to

the usage, in general benefit, of the productive resources, taking care of the conservation and the environment.]

Amended paragraph DOF 20-12-2013

La ley establecerá los mecanismos que faciliten la organización y la expansión de la actividad económica del

sector social: de los ejidos, organizaciones de trabajadores, cooperativas, comunidades, empresas que

pertenezcan mayoritaria o exclusivamente a los trabajadores y, en general, de todas las formas de organización

social para la producción, distribución y consumo de bienes y servicios socialmente necesarios.

[The law will establish the mechanisms to facilitate the organization and expansion of the economic activity of

the social sector: of the ejidos, labor organizations, cooperatives, communities, companies mainly or

exclusively property of the workers and, in general, of all the social organization ways for production,

distribution and necessary goods and services consumption.]

La ley alentará y protegerá la actividad económica que realicen los particulares y proveerá las condiciones

para que el desenvolvimiento del sector privado contribuya al desarrollo económico nacional, promoviendo la

competitividad e implementando una política nacional para el desarrollo industrial sustentable que incluya

vertientes sectoriales y regionales, en los términos que establece esta Constitución.

[The law will encourage and protect the economic activity performed by the individuals and will supply the

conditions for the private sector development so this can contribute to the national economic development,

promoting the competitiveness and implementing a national policy for the sustainable industrial development

that includes sectorial and regional facets, in the terms that this Constitutions establishes.]

Amended paragraph DOF 05-06-2013, 20-12-2013

Article 26 A.

El Estado organizará un sistema de planeación democrática del desarrollo nacional que imprima solidez,

dinamismo, competitividad, permanencia y equidad al crecimiento de la economía para la independencia y la

democratización política, social y cultural de la nación.

98

[The State will organize a system of democratic planning for the national development to grant solidity,

dynamism, competitiveness, permanency and equity to the growth of the economy for the political, social and

cultural national independence and democratization.]

Amended paragraph DOF 05-06-2013

Los fines del proyecto nacional contenidos en esta Constitución determinarán los objetivos de la planeación.

La planeación será democrática y deliberativa. Mediante los mecanismos de participación que establezca la

ley, recogerá las aspiraciones y demandas de la sociedad para incorporarlas al plan y los programas de

desarrollo. Habrá un plan nacional de desarrollo al que se sujetarán obligatoriamente los programas de la

Administración Pública Federal.

[The aims of the national Project contained in this Constitution will determine the planning objectives. The

planning will be democratic and deliberative. Through the participation mechanisms established by the law, it

will consider the aspirations and demands of the society to incorporate them into the plan and the development

programs. There will be a national plan to which the Federal Administration programs will be mandatorily

subject to.]

Amended paragraph DOF 10-02-2014

La ley facultará al Ejecutivo para que establezca los procedimientos de participación y consulta popular en el

sistema nacional de planeación democrática, y los criterios para la formulación, instrumentación, control y

evaluación del plan y los programas de desarrollo. Asimismo, determinará los órganos responsables del

proceso de planeación y las bases para que el Ejecutivo Federal coordine mediante convenios con los

gobiernos de las entidades federativas e induzca y concierte con los particulares las acciones a realizar para

su elaboración y ejecución. El plan nacional de desarrollo considerará la continuidad y adaptaciones

necesarias de la política nacional para el desarrollo industrial, con vertientes sectoriales y regionales.

[The law will faculty the Executive power to establish the participation procedures and public consultation in

the democratic national planning system, and the criteria for the formulation, instrumentation, control and

evaluation of the plan and the development programs. As well, will determine the responsible organisms of the

planning process and the bases so that the Federal Executive can coordinate through contracts with the federal

entities and induce and concerts with the individuals the actions to perform for its elaboration and execution.

The national plan of development will considerate the continuity and adaptations necessary of the national

policy for the national industrial development, with sectorial and regional slopes.]

Amended paragraph DOF 05-06-2013

En el sistema de planeación democrática y deliberativa, el Congreso de la Unión tendrá la intervención que

señale la ley.

[In the deliberative and democratic planning system, the Congress of the Union will have the intervention that

the law dictates.]

99

Amended paragraph DOF 10-02-2014

Article 27.

La propiedad de las tierras y aguas comprendidas dentro de los límites del territorio nacional, corresponde

originariamente a la Nación, la cual ha tenido y tiene el derecho de transmitir el dominio de ellas a los

particulares, constituyendo la propiedad privada.

[The property of the lands and waters within the national boundaries, correspond originally to the Nation, which

has had and has the right to transmit the domain to the individuals, constituting the private property.]

Las expropiaciones sólo podrán hacerse por causa de utilidad pública y mediante indemnización.

[The expropriations would only be possible due to public utility and through compensation.]

La nación tendrá en todo tiempo el derecho de imponer a la propiedad privada las modalidades que dicte el

interés público, así como el de regular, en beneficio social, el aprovechamiento de los elementos naturales

susceptibles de apropiación, con objeto de hacer una distribución equitativa de la riqueza pública, cuidar de

su conservación, lograr el desarrollo equilibrado del país y el mejoramiento de las condiciones de vida de la

población rural y urbana. En consecuencia, se dictarán las medidas necesarias para ordenar los asentamientos

humanos y establecer adecuadas provisiones, usos, reservas y destinos de tierras, aguas y bosques, a efecto de

ejecutar obras públicas y de planear y regular la fundación, conservación, mejoramiento y crecimiento de los

centros de población; para preservar y restaurar el equilibrio ecológico; para el fraccionamiento de los

latifundios; para disponer, en los términos de la ley reglamentaria, la organización y explotación colectiva de

los ejidos y comunidades; para el desarrollo de la pequeña propiedad rural; para el fomento de la agricultura,

de la ganadería, de la silvicultura y de las demás actividades económicas en el medio rural, y para evitar la

destrucción de los elementos naturales y los daños que la propiedad pueda sufrir en perjuicio de la sociedad.

[The nation will have all the time the right to impose to the private property the modalities that the public

interest dictates, as well as the right to regulate, in social benefit, the usage of the natural resources susceptible

of appropriation, with the objective of equity distributing the public wealth, care of its conservation, achieve

the balanced development of the country and the optimization of the rural and urban population’s life conditions.

In consequence, the necessary measures will be dictated to order the human settlements and establish adequate

provisions, usages, reserves and destination of the lands, waters and forests […] and to avoid the natural

elements destruction and damages that the property could suffer in prejudice of the society.]

Amended paragraph DOF 06-02-1976, 10-08-1987, 06-01-1992

Corresponde a la Nación el dominio directo de todos los recursos naturales de la plataforma continental y los

zócalos submarinos de las islas; de todos los minerales o substancias que en vetas, mantos, masas o

yacimientos, constituyan depósitos cuya naturaleza sea distinta de los componentes de los terrenos, tales como

los minerales de los que se extraigan metales y metaloides utilizados en la industria; los yacimientos de piedras

preciosas, de sal de gema y las salinas formadas directamente por las aguas marinas; los productos derivados

100

de la descomposición de las rocas, cuando su explotación necesite trabajos subterráneos; los yacimientos

minerales u orgánicos de materias susceptibles de ser utilizadas como fertilizantes; los combustibles minerales

sólidos; el petróleo y todos los carburos de hidrógeno sólidos, líquidos o gaseosos; y el espacio situado sobre

el territorio nacional, en la extensión y términos que fije el Derecho Internacional.

[Corresponds to the Nation the direct property of all the natural resources of the continental platform and the

submarine zones of the islands; of all the minerals and substances that in veins, mantles, masses or fields,

constitute deposits which nature would be different to the components of the land, such as the minerals from

which metals and metalloids are extracted used in the industry; the fields of precious stones […]; solid mineral

combustibles, the petroleum and all the solid, liquid or gaseous hydrocarbons; and the space situated over the

national territory, in the extension and terms set by the International Law.]

Amended paragraph DOF 20-01-1960

[…]

En los casos a que se refieren los dos párrafos anteriores, el dominio de la Nación es inalienable e

imprescriptible y la explotación, el uso o el aprovechamiento de los recursos de que se trata, por los

particulares o por sociedades constituidas conforme a las leyes mexicanas, no podrá realizarse sino mediante

concesiones, otorgadas por el Ejecutivo Federal, de acuerdo con las reglas y condiciones que establezcan las

leyes, salvo en radiodifusión y telecomunicaciones, que serán otorgadas por el Instituto Federal de

Telecomunicaciones. Las normas legales relativas a obras o trabajos de explotación de los minerales y

substancias a que se refiere el párrafo cuarto, regularán la ejecución y comprobación de los que se efectúen o

deban efectuarse a partir de su vigencia, independientemente de la fecha de otorgamiento de las concesiones,

y su inobservancia dará lugar a la cancelación de éstas. El Gobierno Federal tiene la facultad de establecer

reservas nacionales y suprimirlas. Las declaratorias correspondientes se harán por el Ejecutivo en los casos y

condiciones que las leyes prevean. Tratándose de minerales radiactivos no se otorgarán concesiones.

Corresponde exclusivamente a la Nación la planeación y el control del sistema eléctrico nacional, así como el

servicio público de transmisión y distribución de energía eléctrica; en estas actividades no se otorgarán

concesiones, sin perjuicio de que el Estado pueda celebrar contratos con particulares en los términos que

establezcan las leyes, mismas que determinarán la forma en que los particulares podrán participar en las

demás actividades de la industria eléctrica.

[Regarding the cases referred in the previous paragraphs, the National domain is inalienable and indefeasible,

the usage or the utilization of the resources mentioned, by the individuals or by societies constituted under the

Mexican laws, will not be performed unless through concessions, granted by the Federal Executive, according

to the terms and conditions established by the law, except in the telecommunications and broadcasting, which

will be granted by the Federal Institute of Telecommunications. The legal norms relative to mineral and

substances exploitation referred to in the fourth paragraph, will regulate the execution and verifications of those

performed starting from their validity, independently of the concessions granting date, and its non-obedience

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will be led to its cancelation. The Federal Government has the faculty to establish and suppress national

reserves. […]

Amended paragraph DOF 09-11-1940, 20-01-1960, 06-02-1975, 11-06-2013, 20-12-2013

Tratándose del petróleo y de los hidrocarburos sólidos, líquidos o gaseosos, en el subsuelo, la propiedad de la

Nación es inalienable e imprescriptible y no se otorgarán concesiones. Con el propósito de obtener ingresos

para el Estado que contribuyan al desarrollo de largo plazo de la Nación, ésta llevará a cabo las actividades

de exploración y extracción del petróleo y demás hidrocarburos mediante asignaciones a empresas productivas

del Estado o a través de contratos con éstas o con particulares, en los términos de la Ley Reglamentaria. Para

cumplir con el objeto de dichas asignaciones o contratos las empresas productivas del Estado podrán contratar

con particulares. En cualquier caso, los hidrocarburos en el subsuelo son propiedad de la Nación y así deberá

afirmarse en las asignaciones o contratos.

[Regarding to the petroleum and the solid, liquid or gaseous hydrocarbons, in the subsurface, the property of

the Nation is inalienable and indefeasible and exceptions will not be granted. With the aim of obtaining income

for the State to contribute to the long-run development of the Nation, this will conduct the activities of

exploration and extraction of petroleum and other hydrocarbons through assignations to productive companies

of the State or through contracts with these or with particulars, under the Regulatory law terms. In order to

accomplish with the objective of the mentioned assignations or contracts, the productive companies of the State

could engage with particulars. In any case, the hydrocarbons in the subsurface are property of the Nation, fact

that should be included in the assignations or contracts.]

Added paragraph DOF 20-12-2013

[…] …

Article 28.

En los Estados Unidos Mexicanos quedan prohibidos los monopolios, las prácticas monopólicas, los estancos

y las exenciones de impuestos en los términos y condiciones que fijan las leyes. El mismo tratamiento se dará

a las prohibiciones a título de protección a la industria.

[In the Mexican United States are forbidden the monopolies, monopolist practices, estancos and taxes

exemptions according to the terms and conditions established by the law. The same treatment is given to the

prohibitions in the name of the industry protection.]

En consecuencia, la ley castigará severamente, y las autoridades perseguirán con eficacia, toda concentración

o acaparamiento en una o pocas manos de artículos de consumo necesario y que tenga por objeto obtener el

alza de los precios; todo acuerdo, procedimiento o combinación de los productores, industriales, comerciantes

o empresarios de servicios, que de cualquier manera hagan, para evitar la libre concurrencia o la competencia

entre sí o para obligar a los consumidores a pagar precios exagerados y, en general, todo lo que constituya

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una ventaja exclusiva indebida a favor de una o varias personas determinadas y con perjuicio del público en

general o de alguna clase social.

In consequence, the law will severely punish, and the authorities will prosecute with efficiency, all

concentration or hoarding among few individuals of priority consumption articles and practices with the aim of

prices increase; every contract, procedure or combination of the producers, industrials, tradesmen or services

businessmen, anyway they operate, to block the free concurrency or the competence among each other or to

force the consumers to pay exaggerated prices and, in general, all which constitute an undue exclusively

advantage in benefit of one or more determined persons together with the perjury of the public in general or of

a certain social class.]

Amended paragraph DOF 11-06-2013

Las leyes fijarán bases para que se señalen precios máximos a los artículos, materias o productos que se

consideren necesarios para la economía nacional o el consumo popular, así como para imponer modalidades

a la organización de la distribución de esos artículos, materias o productos, a fin de evitar que intermediaciones

innecesarias o excesivas provoquen insuficiencia en el abasto, así como el alza de precios. La ley protegerá a

los consumidores y propiciará su organización para el mejor cuidado de sus intereses.

[The laws will establish terms so maximum prices can be defined to articles, materials or products considered

necessary for the national economy or the popular consumption, as well to impose modalities to the distribution

organization of these articles, materials or products, with the aim of avoiding that unnecessary or excessive

intermediations provoke insufficiency in the supply, as well as a prices increase. The law will protect the

consumers and will propitiate its organization for a better care of their interests.]

No constituirán monopolios las funciones que el Estado ejerza de manera exclusiva en las siguientes áreas

estratégicas: correos, telégrafos y radiotelegrafía; minerales radiactivos y generación de energía nuclear; la

planeación y el control del sistema eléctrico nacional, así como el servicio público de transmisión y distribución

de energía eléctrica, y la exploración y extracción del petróleo y de los demás hidrocarburos, en los términos

de los párrafos sexto y séptimo del artículo 27 de esta Constitución, respectivamente; así como las actividades

que expresamente señalen las leyes que expida el Congreso de la Unión. La comunicación vía satélite y los

ferrocarriles son áreas prioritarias para el desarrollo nacional en los términos del artículo 25 de esta

Constitución; el Estado al ejercer en ellas su rectoría, protegerá la seguridad y la soberanía de la Nación, y al

otorgar concesiones o permisos mantendrá o establecerá el dominio de las respectivas vías de comunicación

de acuerdo con las leyes de la materia.

[The exclusive State functions will not constitute monopolies in the following strategic areas: post, telegraph

and radiotelegraph, radioactive minerals and generation of nuclear energy; the planning and control of the

electric national system, and the exploration and extraction of petroleum and the other hydrocarbons, in the

terms of the sixth and seventh paragraphs of the article 27 of this Constitution, respectively; as well as the

activities pointed by the law under the approval of the Congress of the Union. […]

103

Amended paragraph DOF 20-08-1993, 02-03-1995, 20-12-2013

El Estado contará con los organismos y empresas que requiera para el eficaz manejo de las áreas estratégicas

a su cargo y en las actividades de carácter prioritario donde, de acuerdo con las leyes, participe por sí o con

los sectores social y privado.

[The State will feature the institutions and companies required for the efficient management of the strategic

areas under its mandate and the priority activities in which, according to the law, it participates alone or with

the social and private sectors.]

El Estado tendrá un banco central que será autónomo en el ejercicio de sus funciones y en su administración.

Su objetivo prioritario será procurar la estabilidad del poder adquisitivo de la moneda nacional, fortaleciendo

con ello la rectoría del desarrollo nacional que corresponde al Estado. Ninguna autoridad podrá ordenar al

banco conceder financiamiento. El Estado contará con un fideicomiso público denominado Fondo Mexicano

del Petróleo para la Estabilización y el Desarrollo, cuya Institución Fiduciaria será el banco central y tendrá

por objeto, en los términos que establezca la ley, recibir, administrar y distribuir los ingresos derivados de las

asignaciones y contratos a que se refiere el párrafo séptimo del artículo 27 de esta Constitución, con excepción

de los impuestos.

[The State will feature a central bank that will be autonomous in the practice of its functions and in its

administration. Its priority objective will be to ensure the stability of the purchasing power of the national

currency, strengthening with it the mandate of the national development corresponded to the State. No authority

will be able to order the bank to supply financing. The State will feature a public trust denominated Fondo

Mexicano del Petróleo para la Estabilización y el Desarrollo (FMPED) Mexican Fund of Oil for the

Stabilization and Development, which Trust Institution will be the central bank and will have as its objective,

in the terms applied by the law, receive, administrate and distribute the income derived from the assignations

and contracts referred in the seventh paragraph of the article 27 of this Constitution, except taxes.]

Added paragraph DOF 20-08-1993. Reformado DOF 20-12-2013

[…]

El Poder Ejecutivo contará con los órganos reguladores coordinados en materia energética, denominados

Comisión Nacional de Hidrocarburos y Comisión Reguladora de Energía, en los términos que determine la

ley.

[The Executive Power will feature the regulatory institutions coordinates in energy policy, denominated

Comisión Nacional de Hidrocarburos (CNH) [National Commission of Hydrocarbons] and Comisión

Reguladora de Energía (CRE) [Energy Regulatory Commission], under the terms determined by the law.]

Added paragraph DOF 20-12-2013.

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COPYRIGHT

I hereby confirm that this research is entirely my own work and that I have not used any

additional assistance or resources other than indicated. All quotations, paraphrases,

information and ideas that have been taken from other sources (including the Internet as well

as other electronic sources) and other persons’ work have been cited appropriately and

provided with the corresponding bibliographical references. The same is true for all

drawings, sketches, pictures and other illustrations that appear in the text.

Any usage of this research must be properly quoted.

Javier A. Becerril Rojas