Leadership makes a difference. Between Latin America's two most important oil producers, the difference is stark.
In Mexico, enlightened leadership has raised hope for an overburdened and isolated oil and gas producing industry and, by extension, a chronically underperforming economy. In Venezuela, populist despotism is running the producing industry and economy aground.
Mexico's fresh leadership comes from President Vicente Fox, inaugurated Dec. 1, 2000, as the first Mexican chief executive in 71 years not from the corrupt Institutional Revolutionary Party (PRI). Fox took power hoping to modernize Mexican institutions, including the state-owned oil and gas industry. Opposition from Mexico's Congress has kept progress slow. Still, any progress is welcome. This year, the government will invite foreign companies to bid for rights to develop onshore natural gas fields. For Mexico, where the constitution and fierce nationalism keep hydrocarbon resources firmly in the grip of state bureaucracy, this is a giant step forward.
The contracts
The first contracts to be offered, possibly by midyear, will apply to gas fields in the Burgos basin near the border with the US. Called multiple service contracts, they will have to comply with strict Mexican laws governing services from foreigners and still be attractive to oil and gas companies. It won't be easy. Details remain sketchy (OGJ, Feb. 11, 2002, p. 64).
Encouraging as it is, this guarded welcome to foreign capital for upstream work-Mexico's first such move in 50 years-results as much from necessity as from political reawakening. If Mexico doesn't take advantage of its gas potential, its imports will need to leap soon to keep up with rapidly rising demand. An already creaky economy doesn't need the burden. But state-owned Petroleos Mexicanos, which in 2000 paid more in taxes than it reported in taxable income, can't afford to do the work solo.
The important political question is whether a PRI government would have responded to those imperatives by making Mexico's rich hydrocarbon potential at all accessible to international capital. The answer: probably not. Fox deserves credit for opening this initial crack in a nationalistic wall that has not served Mexico well.
Venezuela, too, has a program in place to attract foreign capital to exploration and development. The government started signing agreements with foreign oil and gas companies in 1996, 20 years after nationalization of the Venezuelan industry. Companies responded eagerly, signing operating services agreements for development of marginal oil fields and forming joint ventures with units of the state oil company for heavy oil projects.
Then Hugo Chavez won the Venezuelan presidency in December 1998. The economy has been in decline ever since. Chavez, a former paratrooper, won the 1998 and 2000 elections as a champion of poor Venezuelans, of which there are many. But he has mostly shaken business with swerves away from free-market economics and alienated the US-his country's most important oil customer-with absurd flirtations with maverick leaders such as Iraq's Saddam Hussein, Libya's Muammar Qadhafi, and Cuba's President Fidel Castro.
The Cuban adventure looks especially ominous. Castro supports the Revolutionary Armed Forces of Colombia (FARC), the guerrilla group that has bedeviled the Colombian government and economy for many years. Last month, Colombian President Andres Pastrana escalated the conflict by ordering military strikes against FARC positions. Against that backdrop, Chavez's alignment with Castro looks especially menacing.
To oil companies with investments in Venezuela, Chavez is a headache for which relief eventually will come. Already, his popularity has plummeted along with the Venezuela economy. And he's at odds with a growing list of military leaders as well as the Roman Catholic Church.
Two big questions loom. Will Chavez leave without a fight? And how much damage will he have inflicted on Venezuela's economy and regional stability by the time his mercurial presidency finally ends?
Despair and hope
Under Chavez, Venezuela has followed false promise into despair. Under Fox, Mexico has captured a sense of its unrealized potential and kindled hope for constructive change.
Both countries have rich endowments of natural resources and industrious people. In neither country should great numbers of people suffer from poverty. That poverty is nevertheless widespread in both testifies to traditions of wretched leadership. Democracy's conquest over tradition in Mexico shows that wretched leadership doesn't have to be the Latin American norm.
