In an effort to raise capital and focus on the most profitable value-adding activities, Pemex — Mexico’s state-owned petroleum company — is contemplating a sale of its fertilizer subsidiary, according to media reports published on January 12. Surprisingly, the leaked news failed to make the front pages and went largely unnoticed. The information, however, is quite significant since it signals that the state productive enterprise is seeking to scale down operations by selling assets and, perhaps more importantly, to withdraw from an economic activity seen as strategic in reducing Mexico´s dependency on imports of basic staples such as corn.
The prospect of Pemex selling its fertilizer division is contrary to the scenario I described in a 2014 post on this site. At that time, Pemex appeared to be taking steps toward rebuilding the natural gas (ammonia) urea value chain. That meant revamping the production of ammonia (which had declined sharply up to that year) and nitrogen fertilizers (whose output was close to nonexistent).
Such actions implied an upgrade in ammonia plants at the petrochemical complex of Cosoleacaque, in southern Veracruz; at the same time, it suggested the rehabilitation of a urea plant (Agronitrogenados) that had remained idle since 1999 and that Pemex had bought in January 2014. This strategy was being put into action while Pemex expanded its network of natural gas pipelines.
The objective of linking a greater supply of natural gas with the production of ammonia and urea was to provide Mexican farmers with affordable fertilizers and eventually try to reduce the country´s dependency on imports of urea and other staples. All of this seemed plausible under the leadership of Emilio Lozoya, the former CEO of Pemex, and in line with the goals of the recently approved energy reform. However, José Antonio Gonzalez Anaya, the new CEO of Pemex, may not follow the plan of his predecessor.
Pemex owns other urea facilities and idle ammonia plants in Mexico. Since fertilizer and corn imports remain high for the time being, some may question Pemex’s reported intent to hand over this activity to the private sector. Given Pemex’s financial situation and from a corporate point of view, the decision makes sense — but it raises questions regarding the role of the government in a key economic activity needed to strengthen Mexico´s food sovereignty.
Here are some numbers on corn and ammonia production to illustrate this point:
Mexico´s corn imports are increasing year after year; 2012 imports of over 9.5 million metric tons rose to more than 12.1 million metric tons in 2015 – a jump of 27 percent. These import numbers represented 43 and 49 percent of domestic production in 2012 and 2015, respectively. The rise is in part explained by growing domestic consumption, but another element to consider is ammonia (key in the production of nitrogen fertilizers such as urea), whose output decreased by almost 39 percent in the same period.
The numbers on ammonia production not only indicate that Mexican farmers lack access to locally produced affordable fertilizers, but it also highlights the diminishing importance of the fertilizer division for the current management team of Pemex.
That’s most likely why the media on January 12 reported that Pemex hired a Swiss bank to find buyers for its fertilizer subsidiary. But the media did not specify which assets are to be auctioned, and that’s an important detail. A review of the company´s website shows that the assets of the subsidiary include not only fertilizer facilities but also ammonia plants, ammonia pipelines and storage infrastructure.
Is Pemex seeking to sell all of these assets to private firms or just fertilizer plants? There is no conclusive information on that yet. But if the objective is to sell all assets of the fertilizer subsidiary, I believe that the process should be respectful of workers’ rights and not in favor of one single firm acquiring a dominant position in the country’s ammonia-fertilizer market.
Adrian Duhalt, Ph.D., is a nonresident scholar for the Baker Institute Mexico Center and was the center’s summer 2014 Puentes Visiting Scholar. He is also an associate professor at Universidad de las Américas Puebla (UDLAP), where his teaching focuses on economic geography, corporate strategy and energy issues in North America.
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