At last, the U.S. is pushing back on Mexican President Andrés Manuel López Obrador’s energy imperialism.
His plan to buy out a controlling stake in a major refinery near Houston hit a last-minute delay late last month, when the Treasury Department’s Committee on Foreign Investment in the United States said it would review the deal.
The story first broke on May 24, when López Obrador announced to an astonished public in Mexico and Houston that Mexico’s Pemex had bought Shell Oil Co.’s controlling interest in the huge Deer Park refinery that Shell had operated for decades in a joint venture with Pemex. The president insinuated that regulatory approval would be but a formality and that the deal would be closed in the fourth quarter.
Analysts were surprised by how the deal had been worked out in secrecy over many months without a single press leak. Pemex’s own refinery executives were not consulted.
Rep. Brian Babin, R-Woodville, who represents the district that includes the refinery, had complained about the sale and had asked Treasury Secretary Janet Yellen to halt the deal.
The unexpected delay comes at a time when U.S. industry and political leaders are concerned that Mexico has not followed through on promises to privatize its oil and gas industry, to the detriment of some U.S. companies.
Sen. Ted Cruz, in a Committee on Foreign Relations hearing, posed sharp questions to the State Department’s Brian A. Nichols, head of the office for Latin America, about Mexico’s destructive energy policies. As Cruz rightly noted, the diplomat’s unwillingness to frankly answer his questions revealed the Biden administration’s unwillingness to confront the Mexican government on energy policy.
In a letter to President Donald Trump last year, 43 members of Congress from both parties complained that the Mexican government is threatening U.S. energy investments and undermining trade. This complaint was repeated in a letter in November signed by 40 House Republicans.
Texas Gov. Greg Abbott wrote a letter to President Joe Biden last month criticizing his administration for failing to control illegal immigration and protect American investments in Mexico’s energy space.
Finally, it seems, the U.S. is pushing back on the Deer Park refinery sale.
Who, and on which side of the border, is asking the awkward questions that led to the delayed handover? Pemex is to pay upward of $1.5 billion even though there is no provision in its annual budget to acquire the Deer Park refinery. The funds are coming from the government, some $500 million borrowed. Because Pemex, owned by the federal government, is a recognized financial entity, it should make no difference to bankers whence comes the money.
The regulatory bar for the Treasury Department’s CFIUS is set high so that only those foreign investments that jeopardize American national security are denied. It is not the responsibility of CFIUS to opine on the commercial wisdom of a venture.
As for the business of the Deer Park refinery, for the past several years, it has reported financial losses. As of September 2021, its losses were $360 million — over $1 million daily. Shell has offered no public explanation for the financial performance or commercial outlook of the refinery.
There are concerns that should give CFIUS reason to pause:
Most simply, Pemex is an unqualified buyer. The business plan for 2021 to 2024 that Pemex posted on its website doesn’t mention Deer Park, suggesting that its made no internal preparations to operate an American refinery in its physical and regulatory dimensions. Shell has said that everything will remain the same, with the same employees continuing in their same jobs.
Not everything will stay the same, however, as attested by an adage of Texas farmers: “The best fertilizer is the footprint of the owner.” A Mexican analyst responded, “Pemex wears heavy boots.”
The greater concern should be the heavier boots worn by the president of Mexico. Since 2018, he has populated senior positions in the energy sector with loyalists who have no formal qualifications for their positions. Consider that the chief executive of Pemex and the head of the refinery division are both agronomists and AMLO loyalists from the time when he was mayor of Mexico City in the early 2000s.
The Treasury Department should be worried about a foreign sovereign gaining authority of a major industrial facility on American soil. Mexico’s president has shown his eagerness to exercise that authority.
It’s doubtful, however, that the treasury’s Committee on Foreign Investment has the staff expertise to discern the political risk behind the veil of commercial convenience. If the sale is approved, taxpayers on both sides of the border will be paying for its failure.
The public can comment on the proposed sale to CFIUS.firstname.lastname@example.org.
George Baker is the founding publisher of Mexico Energy Intelligence and the platform director of Energia.com. He wrote this column for The Dallas Morning News.
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