Flash Fixed Income Report /
Mexico

Pemex's union leader resigns on corruption probe

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    15 October 2019
    Published by

    Carlos Romero Deschamps, the long-time Pemex union leader, is resigning allegedly as a result of an investigation being conducted by Mexico’s Financial Intelligence Unit, which filed a number of criminal complaints with the Office of the Attorney General, accusing Deschamps and six of his relatives of money laundering and illegal enrichment through “illicit activities”. The Financial Intelligence Unit reports to, and is part of, the Ministry of Finance. 

    Deschamps has applied for, and obtained, an “amparo” – a definitive suspension of his arrest – from a federal judge. This legal appeal is allowed when a person of interest might be issued an arrest order, so that he or she can go through the proper legal proceedings outside of prison, and preventing (at least temporarily) the Office of the Attorney General to issue an arrest warrant.

    Deschamps has been a member of the Institutional Revolutionary Party (PRI) that was in power during Enrique Peña Nieto's administration, when the alleged illicit activities took place. This is not the first time he has been accused of corruption. During the presidential campaign of Francisco Labastida Ochoa in 1999 and 2000 (who lost the presidency to the National Action Party candidate, former president Vicente Fox), Pemex and Deschamps were accused of transferring money from the oil union to Labastida’s campaign and his party, the PRI. However, at that time, there was not enough evidence and the case was dismissed.

    In addition to Deschamps, the Federal Prosecutor’s Office has issued an arrest warrant against former Pemex CEO Emilio Lozoya and the arrest of Alonso Ancira, Chairman of Mexican steel maker Altos Hornos de Mexico (AHMSA). The charges have to do with the sale and purchase of Pemex fertilisers subsidiary Fertilizantes Nacionales (Fertinaless) in a transaction that was apparently overvalued.

    Meanwhile, with Deschamps' resignation (he has been the oil workers’ union leader for over two decades), traditionally, it has been the president who has had an indirect (but always binding, albeit unofficially) say on who the head of the union should be. This time around, however, President Andrés Manuel López Obrador (AMLO) said that he wants to see members of the country’s different unions to choose their leaders freely, without any input or interference from the Executive. It remains to be seen if this will, in fact, be the case.

    The oil workers union is one of the two strongest unions in Mexico (the second being the Teachers’ Union). We expect strong infighting within the union to follow, and likely clashes from the different sectors that will want one of their own members to lead. This could distract Pemex from focusing on its business plans and strategies, and could result in lower production. If the new leader demands to review the collective labour contracts, it could potentially increase costs and unfunded liabilities for Pemex, and create further uncertainty regarding the relationship between Pemex's management, board and the future union leader.

    We believe that it is still too early to determine who could succeed Deschamps, the new leader's relationship with AMLO and Pemex’s current CEO Octavio Romero, or if the process to pick a new union leader will have any implications on the company’s operations.

    We have a Hold recommendation on Pemex.