PETROLEOS MEXICANOS: A VERY, VERY GOOD PLACE TO

UNCLAS SECTION 01 OF 04 MEXICO 003993

SIPDIS

SIPDIS

DEPT FOR DRL/AWH AND ILCSR, WHA/MEX AND PPC, WHA/EPSC,
EB/IFD/OMA, EB/ESC, USDOL FOR ELAB
USDOC FOR 4230/ITA/MAC/ONAFTA, USDOC FOR ITS/TD/ENERGY
DIVISION, TREASURY OF IA, DOE FOR INTERNATIONAL AFFAIRS
NSA FOR FISK

E.O. 12958: N/A
TAGS: ELAB ECON ENRG EPET PGOV PINR MX
SUBJECT: PETROLEOS MEXICANOS: A VERY, VERY GOOD PLACE TO
WORK

REF: (A) 06 MEXICO 5720 (B) 06 MEXICO 6241


1. SUMMARY: On July 17, Petroleos Mexicanos, Mexico,s
national petroleum company (Pemex),and the Petroleum Workers
Union (STPRM) announced an agreement on a new collective
bargaining contract for 2007-2009. The current Pemex/STPRM
contract was set to expire on August 31, 2007. This was
reportedly the first time since 1991 that the company and the
union reached an agreement on a contract without the threat
of a strike. The new contract, which gives the workers a
combined wage and benefits increase of 5.85 percent, was
hailed by both Pemex and the union as an example of the
determination by all parties to do what was best for the
company. The signing of the new contract prompted many
observers of Mexico,s labor and petroleum sectors to request
details of the agreement under what could roughly be
described as the Mexican equivalent a Freedom of Information
Act request in the U.S. Those requesting information on the
new contract did not receive everything they asked for, but
what they did get raised eyebrows and legitimate speculation
as to whether the extremely generous terms given to STPRM
members was an abuse by the union of Pemex and of the Mexican
government which is so heavily dependent on oil revenues to
cover the federal budget. END SUMMARY


PEMEX AND THE UNION AGREE ON A NEW CONTRACT
--------------


2. This year, reportedly for the first time since 1991,
Petroleos Mexicanos, Mexico,s national oil company, and
STPRM (Union of Petroleum Workers of the Mexican Republic),
the Petroleum Workers Union, reached agreement on a new
collective bargaining contract without the threat of a
strike. The agreement was announced on July 17 and will
cover the period from 2007-2009. The current contact,
negotiated in 2005 was set to expire on August 31, 2007. The
negotiations for the new contract took approximately six
weeks during which Pemex agreed to give union workers a raise
of 4.25 percent in salary and to pay another 1.6 percent in
benefits for a total combined increase of 5.85 percent.


3. Many elements, or clauses, of the 2005 contact were
carried over verbatim into the new collective bargaining
agreement. According to Pemex, 90 percent of the increased
cost of the new contract will be covered by (unspecified)
savings the company has achieved in its overall operations
this year. The new contact was hailed by both Pemex and the
union as an example of the determination by labor and
management to do what was best for the company. The actual
signing of the agreement received considerable press coverage
in which numerous newspapers took pains to note that many the
union leaders present at the event arrived in designer suits,
with crocodile belts, &Ferragamo8 shoes, large gold watches
and &Mont Blanc8 pens.


QUESTIONS RAISED ABOUT THE PEXEX/STPRM AGREEMENT
-------------- --


4. Perhaps because of the extensive press coverage, perhaps
because of the large role petroleum revenue plays in the
Mexican governments federal budget (in 2006 income from Pemex
accounted for over 35 percent of the GOM,s total budget);
the Pemex/STPRM agreement generated considerable public
interest. Shortly after the contract was signed many
observers of Mexico,s labor and petroleum sectors turned to
the GOM for details of the agreement. Taking advantage of
what could roughly be described as the Mexican equivalent of
a U.S. Freedom of Information Act request, observers of
Mexico,s labor sector and petroleum industry turned to two
GOM agencies for the details of the new contract.
Specifically they requested information from the Federal
Conciliation and Arbitration Council (somewhat comparable to
the U.S. National Labor Relations Board) and the Federal
Institute on Access to Information (IFAI).


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5. The main source of information was the Conciliation and
Arbitration Council which, among other things, is responsible
for reviewing and maintaining copies of all formally
concluded collective bargaining agreements. The Council's
publicly available files contain printed copies of contracts
but, in the absence of an official complaint, nothing on
their implementation. For information on the implementation
of the Pemex/STPRM contract observers turned to IFAI. IFAI
requested implementation information from both Pemex and the
STPRM but neither of them were completely forthcoming.
Pemex, as a state owned enterprise, was essentially required
by law to respond to IFAI inquiries. However, in some
instances it declined to release information claiming that
the specific data requested was protected by Federal Labor
Law under statues governing union autonomy. Under those same
statues STPRM successfully obtained a federal court
injunction which allowed it to refuse IFAI,s request for
information.


PUBLICLY AVAILABLE INFORMATION ON THE PEMEX/STPRM CONTRACT
-------------- --------------


6. Despite the reluctance of Pemex and STPRM to provide many
of the specific details on the implementation of their
collective bargaining agreement, a considerable among of
information is publicly available. For example, as of 2006
Pemex officially had 117,000 employees who were members of 36
Sections (Locals) throughout Mexico. One of the items that
were part the Pemex and union negotiation was the question of
employee transfers. Both the STPRM and Pemex acknowledge
that the company has 16,000 employees whose jobs have
disappeared because of plant or processing facilities closing
or because they were previously employed in areas where oil
production has dropped.


7. At present these individuals draw full salaries and
benefits even though they are not actually working. Pemex is
not looking to cut these workers, simply to transfer them to
other facilities or company subsidiaries where workers are
still needed. The transfer of these surplus workers was one
of the items being discussed in the just concluded contract
negotiations. It is assumed the union agreed to these
transfers dictated by business necessity, but neither Pemex
nor the union has specifically said what the outcome of this
point of negotiation was.


8. Another publicly known item concerns the amounts needed
for and the consequences of, paying out retiree benefits.
According information released by Mexico,s Energy and
Treasury Secretariats, Pemex was supposed to invest funds in
165 special projects (infrastructure improvements) in 2007.
Of these special projects, 61 have reportedly been put on
hold because the company used USD 2.269 billion more than
expected to cover retiree pensions and benefits. It can be
argued that the company should have properly budgeted for
these expenses and perhaps Pemex attempted to do so and
simply miscalculated. Nevertheless, although it may have
been Pemex who was at fault, it is the STPRM who is being
criticized for taking funds away from badly needed capital
investments.


READ THE FINE PRINT ( THAT IS, READ THE CLAUSES
-------------- --


9. The real good, bad and ugly of the details of publicly
available information about past and present collective
bargaining contract between STPRM and Pemex can be found by
reading the clauses of the contracts on file with the Federal
Conciliation and Arbitration Council. Clause numbers 32 and
33 establish important elements of the relationship between
Pemex and the union while numbers 245 and 246 lay out
benefits payable by Pemex to either to the union or to STPRM
workers. All of the above Clauses are either broad in scope
or provide generous terms of payment but they pale in
comparison to Clause number 251.

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10. Clause numbers 32 and 33 allow STPRM to discipline its
members for real or presumed infractions of labor
rules/statues without having to consult with Pemex company
management. Moreover, the two clauses oblige Pemex to carry
out almost any penalty the union imposes. For example, if a
worker decides to leave the union STPRM can force Pemex to
terminate that person's employment even if the employee is a
highly skilled worker who has always complied in every way
with company regulations. Under these two clauses Pemex does
not have the right to question in any way disciplinary
decisions taken by STPRM. Similarly, STPRM can expel a
worker from the union for a broad range of disciplinary
reasons and then force Pemex to fire the worker. Again Pemex
has no right to ask why the worker was expelled from the
union and if it does learn why, it has no right to question
whether the alleged action by the worker merits expulsion
from the union and dismissal from his/her employment.


11. In clause 245 of the newly negotiated contract Pemex is
obliged to withhold union dues from the STPRM members and
turn the dues over to the union. The amounts of the dues are
determined by the union and can be used for whatever purpose
the union deems appropriate. Clause 246 obligates Pemex to
withhold from worker salaries any amount deemed appropriate
to pay off any loans that the employee may have borrowed from
the union.


THE REAL SWEETHEART DEAL IS IN CLAUSE 251
--------------


12. Of all the clauses in the Pemex/STPTM contract, the one
that provides the most generous (and perhaps even lavish)
benefits to both the union and the workers is clause 251.
This clause was carried forward almost verbatim from the 2005
contract. Under this clause Pemex is required to pay the
union 84 million pesos (approximately USD 7.6 million) to be
used to hire personnel specifically assigned the task of
reviewing the overall collective bargaining agreement and
preparing the union,s position for future contract
negotiations. Under the terms of this clause of the
2005-2007 contract, STPRM hired 83 consultants, 55 general
advisors, 9 technical assistants, etc., etc. for a total of
287 persons whose sole function was to help the union
negotiate a better contract with Pemex. These 287 persons
were over and above the regular 68 permanent members of the
STPRM,s General Executive Committee who are formally charged
with preparing for and conducting contract negotiations.


13. Other items in Clause 251 for the length of the contract
include:

23.4 million pesos annually (about USD 2.15 million) to pay
for May 1, International Workers Day celebrations;

13.15 million pesos annually (about USD 1.204 million) for
the annual commemoration of the nationalization of Mexico,s
petroleum fields and industry;

19.7 million pesos annually (about USD 1.81 million) paid to
the STPRM,s General Executive Committee to cover business
travel expenses;

11 million pesos annually (about USD 1 million) to cover
worker transportation expenses;

3.5 million pesos annually (about USD 321,100) in food
subsidies;

965,000 pesos annually (about USD 85,871) for company
baseball caps for each employee;

1.29 million pesos annually (about USD 118,073) for company
tee shirts for each employee; and finally

In addition to the above items Pemex is required to provide

MEXICO 00003993 004 OF 004


office space (in company facilities or rented on the
commercial market) and pay for the utilities for all 36 STPRM
Section office throughout Mexico. Included in the payment of
these offices is the Pemex,s responsibility to cover all
salaries and benefits for the 327 permanent union staff that
provide administrative support for the 68 members of the
STPRM,s General Executive Committee.


EVEN OPPOSITION PARTIES TAKE PAUSE
--------------


14. Since the inauguration of National Action Party (PAN)
government of Mexican President Felipe Calderon,s
administration, the country,s main opposition party, the
Party of the Democratic Revolution (PRD) has often taken
issue with the GOM on a wide range of issues. However, with
the recent media coverage of the Pemex/STPRM collective
bargaining agreement even the PRD has expressed concerns over
the long term implications of the union/oil company
contracts. The lead Senator of the PRD faction in the
Mexican Senate has expressed his party,s willingness to work
with the administration to put a halt to excesses in the
negotiation of Pemex labor contracts.


15. As the PRD describes itself as a leftist party the
Senator laid the blame for the hemorrhaging of excessive
benefits in the new contract on the STPRM leadership and not
on the workers. The Senator also blamed Pemex company
management, not just for the excessive labor contracts but
also for the lack of transparency in the way Pemex does
business in bidding out contract to private companies who
work with the national oil company. Nevertheless, the fact
that leader in the PRD in the senate was willing to publicly
express common cause with President Calderon,s government is
significant sign of how shocked the general Mexican
population is over the revelations of terms and clauses of
the Pemex/STPRM contract reported in the national press.


COMMENT
--------------


16. No matter what the press, the national legislature or
any other sectors of Mexican society may say, at this point
the Pemex/STPRM collective bargaining agreement is a done
deal. Under Mexican law there is almost no way to change the
terms and clauses of the current negotiated contract until
its expiration in 2009. If Mexico,s ruling PAN political
party its main opposition, the PRD, work together it is
possible that future legislation may force some level
cutbacks limits to the salaries and benefits that can be
negotiated between the union and Pemex. Given how dependent
the Mexican government,s federal budget is on oil revenues
from Pemex it would clearly be in the national interest to
get some level of control over the oil company,s labor and
administrative costs. On the other hand, unions in Mexico
are very unaccustomed to any type of give-backs and it is
hard to imagine that the STPRM will agree to cuts in salaries
and benefits with first having resorted to a strike that
could have serious and unforeseen consequences. Also, as the
STPRM has historically been closely linked to the
Institutional Revolutionary Party (PRI),which ruled Mexico
for most of the past 70 years, the union would probably call
on its traditional ally to help fight off any efforts to
force serious give-backs.




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