SourceMex - Economic News & Analysis on Mexico
October 15, 1997
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L A T I N A M E R I C A D A T A B A S E
SourceMex - Economic News & Analysis on Mexico
ISSN 1054-8890 Volume 8, Number 37 October 15, 1997
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Copyright 1997, Latin America Data Base (LADB), Latin
American Institute, University of New Mexico
Director: Rebecca Reynolds Bannister
Managing editor: Kevin Robinson
Staff writers:
Patricia Hynds, Carlos Navarro, Robert Sandels
LADB ARCHIVES: Back issues are referenced to provide
historical background relevant to the articles in this
newsletter. These can be accessed with a subscription to the
LADB searchable on-line archives at http://ladb.unm.edu/ by
clicking on Search Archive. For subscription information,
e-mail info@ladb.unm.edu or call 1-800-472-0888.
In This Issue:
NISSAN & VOLKSWAGEN ANNOUNCE MAJOR
EXPANSION OF OPERATIONS IN MEXICO
* Nissan to move production of Sentra model to
Aguascalientes
* Expansions to boost demand for domestic auto parts
ENERGY REGULATORY AGENCY INITIATES PRIVATIZATION OF
GOVERNMENT-MANAGED NATURAL-GAS SYSTEM IN MONTERREY
* Privatizations also move forward in Mexico City &
Tamaulipas
JANUARY-SEPTEMBER INFLATION RATE REPORTED AT 11.96 PERCENT
PEMEX AWARDS CONTRACT TO MULTINATIONAL CONSORTIUM
TO CONSTRUCT NITROGEN INJECTION PLANT
* Technology intended to boost oil output in Campeche Sound
* Project attracts some opposition
LEGISLATORS PROPOSE CONSTITUTIONAL CHANGES TO GRANT
GREATER AUTONOMY FOR HUMAN RIGHTS COMMISSION
* Amnesty International report details violations in Mexico
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Domestic & foreign private investment
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NISSAN & VOLKSWAGEN ANNOUNCE MAJOR
EXPANSION OF OPERATIONS IN MEXICO
In early October, the Mexican subsidiaries of German-
based Volkswagen and Japan's Nissan announced plans to expand
their motor-vehicle assembly operations in Mexico to boost
sales in North America, primarily in the US market.
Speaking to reporters from the company's headquarters in
Germany, Volkswagen president Ferdinand Piech said the firm
intends to invest about US$1 billion through the year 2000 to
expand its operations in Puebla and to construct new
facilities in several other Mexican states.
In an interview with Mexico's official news service
Notimex, Piech said that the expansion plans will create at
least 1,500 new jobs in Mexico. He said it will also allow
Volkswagen to greatly increase production of the Beetle and
Jetta models.
Piech said the company is particularly interested in
expanding sales of Volkswagen's new Beetle. Last December,
Volkswagen announced that the Puebla plant would play a key
role in producing the new Beetle, which will be marketed in
the US in early 1998 and in European markets later in the year
(see SourceMex, 12/18/96).
"Mexico in general, and our Puebla plant in particular,
has a very relevant position in Volkswagen's globalization
strategy," Piech said.
Nissan to move production of Sentra model to Aguascalientes
In the case of Nissan, company officials said assembly of
the Sentra model will be transferred from a plant in the US
state of Tennessee to Nissan de Mexico's facility in
Aguascalientes.
According to Nissan Motors president Yoshikazu Hanawa,
the company plans to spend about US$250 million to upgrade and
expand the Aguascalientes plant to accommodate the increased
production of Sentras in North America, which is expected to
double to about 330,000 units by the year 2000.
In addition, Hanawa said the company anticipates other
expenditures of US$550 million in its Mexican operations
through the year 2000. The Sentras assembled in
Aguascalientes, beginning in November 1999, are intended
primarily for export to the US market. The Aguascalientes
plant is also expected to supply motor vehicles for the
domestic market.
"We expect the market for compact automobiles to continue
recovering in Mexico," said Hanawa.
Notwithstanding Hanawa's optimism, however, industry
statistics show that domestic demand for automobiles remains
sluggish. According to the Asociacion Mexicana de
Distribuidores de Automotores (AMDA), sales of passenger
automobiles from January-August of this year are far below the
same period in 1994, before the devaluation of the peso.
In fact, AMDA said domestic sales have experienced a
downturn this year compared with last year. Domestic sales in
January-August averaged 35,000 units per month, compared with
50,000 per month in the first eight months of 1996.
Expansions to boost demand for domestic auto parts
Nissan and Volkswagen executives said their planned
expansions include increased purchases of auto parts from
Mexican suppliers. According to statistics compiled by the
Banco de Mexico (central bank), 600 Mexican-based companies
are involved in the production of auto parts. In comparison,
the bank said, there were only 155 suppliers in 1995.
Some motor-vehicle manufacturers, such as Ford Motor Co.,
have increased the percentage of domestically produced auto
parts. According to Ford executives, the company now acquires
11% of its components for motor vehicles assembled at Mexican
plants from domestic suppliers, at a cost of US$3 million
annually.
Trade Secretary Herminio Blanco said the government
expects both the motor-vehicle and auto-parts industries to
contribute to a strong recovery of the Mexican economy in
coming years. According to Blanco, the motor-vehicle industry
has grown by 20% so far in 1997, while the auto-parts sector
has experienced growth of 15% during the same period.
According to a study compiled by the daily newspaper El
Economista, the eight major foreign motor-vehicle
manufacturers with plants in Mexico are expected to expand
their direct investments in the country through the end of the
century. The report said Volkswagen, Ford, Chrysler, General
Motors, Fiat, Nissan, Renault, and Hyundai are expected to
spend a combined US$6 billion through the year 2000 to enhance
their facilities in Mexico. (Sources: Reuter, 10/08/97,
10/09/97; Notimex, 10/12/97; The News, 10/10/97, 10/13/97;
Novedades, 10/13/97; Excelsior, 10/10/97, 10/14/97; El
Economista, 09/25/97, 10/15/97; El Universal, 10/13/97,
10/15/97)
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Public sector finance & planning
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ENERGY REGULATORY AGENCY INITIATES PRIVATIZATION OF
GOVERNMENT-MANAGED NATURAL-GAS SYSTEM IN MONTERREY
In early October, the federal energy regulatory agency
(Comision Reguladora de Energia, CRE) launched the
privatization of the natural-gas distribution network in
Monterrey. The network is currently owned and operated by the
Comision Federal de Electricidad (CFE).
The CRE decided to privatize the Monterrey distribution
network after a thorough review of the operation. In the
review, the agency concluded that the CFE's mission is to
provide electrical power, not distribute natural gas.
In the first phase of the privatization scheme, the CRE
will accept technical proposals from interested participants.
They must submit those proposals, plus a registration fee, by
Dec. 19. The CRE has appointed the federal public-works bank
(Banco Nacional de Obras y Servicios Publicos, BANOBRAS) to
evaluate all applications. The participants whose technical
bids are accepted will then be required to submit economic
bids by Jan. 29. The awards will be announced on March 19.
The CFE currently distributes about 1.7 million cubic
feet of gas to more than 300,000 residential and commercial
users in the city. Monterrey is one of the few cities in
Mexico with direct distribution lines to residential areas.
The winner of the CFE's distribution system will compete
for new customers in Monterrey with Compania Mexicana de Gas,
a joint venture formed by Texas-based Enserch Corp. and
Mexico's Grupo Divaz. In September, the partnership received
a five-year concession to provide natural gas to 50,000
customers in Monterrey, primarily industrial users.
Two other suppliers in Monterrey, Pemex-Gas and
industrial cooperative GIMSA, cater primarily to a small group
of industrial users.
Privatizations also move forward in Mexico City & Tamaulipas
Meanwhile, the government is proceeding with
privatization of natural-gas distribution systems in Mexico
City and northern Tamaulipas state. The terms for concession
of both systems were initially announced in July of this year
(see SourceMex, 07/23/97).
The concession of the Mexico City system will involve
construction of pipelines and other infrastructure, since the
Mexican capital is one the largest cities in the world without
a natural-gas distribution system. At present, most residents
of the city rely on liquefied petroleum gas or propane.
The project will create two different distribution
systems to serve the city, which has been divided into two
districts: Mexico City's central area and outlying regions in
Mexico state.
According to CRE executive Javier Estrada, six consortia
have expressed an interest in bidding to supply natural gas to
customers in Mexico City. Estrada said potential bidders
include a handful of companies that have already won CRE gas-
distribution concessions in other parts of the country. One
of those companies is California-based Enova Corp., which won
distribution rights in Baja California and Chihuahua state.
Another is construction company Gutsa, which recently won a
concession for several cities on the Gulf of Mexico.
In late September, the CFE also announced that the list
of companies competing for distribution rights in northern
Tamaulipas state has been narrowed to three finalists. The
three competing consortia are:
* Gaz de France International, Mexigas, and Bufete
Industrial (GDFI-Bufete);
* Grupo Mexicano de Desarrollo, British Columbia Gas and
Shell Oil Co.;
* Noram Energy de Mexico and Corporacion Gutsa.
According to the CRE, the winning bidder is expected to
invest about US$19 million to upgrade the region's natural-gas
distribution system, which would include the cities of
Reynosa, Rio Bravo, Matamoros, and Valle Hermoso. The three
consortia will be required to submit separate technical and
economic proposals. La CRE is expected to announce a winning
bidder by March 20, at the latest. (Sources: El Nacional,
09/30/97; Bloomberg news service, 10/02/97; El Economista,
Excelsior, The News, 10/03/97; El Financiero International,
10/06/97; Houston Chronicle, 10/07/97; Proceso, 10/12/97)
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Macroeconomic indicators & projections
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JANUARY-SEPTEMBER INFLATION RATE REPORTED AT 11.96 PERCENT
According to the Banco de Mexico (central bank), the
consumer price index (indice nacional de precios al
consumidor, INPC) rose by only 1.25% during September,
bringing accumulated inflation to 11.96% for January-
September.
If the INPC averages about 1% each month between October
and December, the government will reach its target of 15%
annual inflation this year. The accumulated rate for January-
September is much lower than the 20.39% recorded during the
same nine-month period in 1996.
The central bank report said the INPC for September was
about 0.36% higher than for August because of the start of the
school year. The September data included higher tuition for
private schools, plus increased demand for clothing and
footwear and for books and school supplies.
An increase in food prices also contributed to INPC
growth in September. Among foodstuffs, the most dramatic
increases were for such products as eggs, milk, tortillas,
beef, onions, peas, carrots, oranges, and pineapples.
The higher food prices were reflected in a 1.14% increase
in the index for the basic basket of goods. However, the
September increase in the basic basket was lower than the 2.3%
rise in the same index during August.
Other increases during the month were reported for goods
and services, such as gasoline, telephone service, domestic
heating oil, electricity, toilet paper, soap, automobile
repairs, and automobile insurance.
For September, the central bank reported the producer
price index (Indice Nacional de Precios al Productor, INPP) at
0.94%, which was only slightly higher than the 0.80% rate
reported for August. The INPP does not take into account the
cost of crude oil. (Sources: El Universal, 09/10/97;
Excelsior, 09/02/97, 10/10/97; El Universal, El Economista,
10/10/97)
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Oil & other extractive industries
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PEMEX AWARDS CONTRACT TO MULTINATIONAL CONSORTIUM
TO CONSTRUCT NITROGEN INJECTION PLANT
In mid-October, the state run oil company PEMEX awarded
a US$1 million contract to a multinational consortium to
construct the world's largest nitrogen injection plant.
The plant, which will be constructed on the Atasta
Peninsula near the Cantarell oil field, will supply 1.2
million cubic feet of nitrogen daily to PEMEX subsidiary Pemex
Exploracion y Produccion for use in drilling operations
offshore in the Gulf of Mexico.
In addition to a 40-megawatt plant, the contract calls
for construction of 100 km of land- and ocean-based pipelines
connecting the plant with offshore oil wells.
Technology intended to boost oil output in Campeche Sound
According to PEMEX spokespersons, the nitrogen produced
at the plant will be injected into oil wells in the Campeche
Sound to draw out supplies located deep underground. PEMEX
said the use of such technology in drilling operations could
boost Mexico's crude-oil production to 2 billion barrels per
day. The nitrogen will be used as a substitute for water or
natural gas.
The Campeche Sound accounts for 80% of Mexico's total
reserves of crude oil. The Cantarell oil field alone contains
about 35 billion barrels, or roughly 57.5% of Mexico's total
proven reserves.
PEMEX said the 15-year contract for construction of the
nitrogen plant was awarded to a consortia involving Mexican
engineering company Ingenieros Civiles Asociados (ICA) and
five other partners. The other companies are BOC Holdings
(Britain), Flour Daniel (US), Linde AG (Germany), Marubeni
(Japan), and Westcost Energy (Canada).
Project attracts some opposition
The nitrogen-plant contract has generated controversy.
A number of environmental groups object to the project, citing
concerns that any leakages of nitrogen could cause irreparable
damage to the area's ecology. In an attempt to ease these
concerns, PEMEX said the winning consortia will be required to
take steps to protect the environment during the numerous
stages of the project.
Another concern was raised by George Baker, an expert on
Mexico's energy sector. Baker questioned whether the proposed
technology could be applied to a project of the magnitude of
Cantarell, which requires the daily injection of 1.2 billion
cubic feet of nitrogen into oil wells. According to Baker,
the nitrogen-injection system works best in small-scale
operations, such as one currently under way in the North Sea
area of Europe.
The announcement of the concession has also been marred
by complaints from competing consortia about irregularities in
PEMEX's decision-making process to award the contract. One of
the two losing consortia--British-Dutch oil company Shell and
four partners--has asked for a review of the process.
The third consortium included Mexico's Bufete Industrial
and five other partners. (Sources: Reuter, 10/08/97,
10/10/97; La Jornada, 10/11/97; El Economista, 10/13/97,
10/14/97; Excelsior, 10/14/97)
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Political developments
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LEGISLATORS PROPOSE CONSTITUTIONAL CHANGES TO GRANT
GREATER AUTONOMY FOR HUMAN RIGHTS COMMISSION
In mid-October, the Chamber of Deputies took steps to
ensure greater protection of human rights in Mexico. In a
bill presented to the full Chamber, Gerardo Acosta Zavala of
the Partido del Trabajo (PT) proposed to reform four articles
in the Mexican Constitution. In essence, the legislation
proposes full autonomy for the Comision Nacional de Derechos
Humanos (CNDH), thus turning the agency into a human rights
ombudsman.
According to Deputy Acosta, the initiative would make the
CNDH accountable to the legislature rather than to the
executive branch. Under the current structure, the executive
branch exerts full control over the operations of the CNDH,
which has led to charges that the Commission has ignored or
covered up human rights violations in Mexico (see SourceMex,
08/06/97).
"The Vienna Declaration approved in the World Conference
on Human Rights in 1993 suggested that the ombudsman be
appointed and dismissed by the legislative branch," said
Acosta.
The proposal is expected to gain approval in the
government-affairs committee (Comision de Gobernacion y Puntos
Constitucionales). The measure would then go to the full
Chamber of Deputies for a vote.
According to legislators from the opposition Partido de
la Revolucion Democratica (PRD) and the governing Partido
Revolucionario Institucional (PRI), CNDH president Mireille
Roccatti will be summoned to testify before the Chamber in the
next several weeks.
In the Senate, members are considering their own
proposals to strengthen the human rights protection agency.
"Unfortunately, President Ernesto Zedillo and the CNDH
deny the existence of any systemic violations of human
rights," said PRD Sen. Auldarico Hernandez. He stressed that
the government and independent organizations must place a much
higher priority on protecting civil rights.
"If we do not take this step ourselves, we will face
constant pressure from international nongovernmental
organizations," said Hernandez.
In response, President Zedillo has proposed the creation
of a special government commission of cabinet officials to
provide greater cohesiveness to his administration's efforts
to address human rights complaints. Members of the Chamber of
Deputies and Senate said, however, that although this was a
positive step, it was inadequate. The best solution, they
said, would be to give the CNDH greater autonomy.
Amnesty International report details violations in Mexico
The moves in both branches of the legislature coincided
with a controversial visit to Mexico by members of Amnesty
International (AI). In a report published in late September,
AI criticized the "worsening human rights situation" in
Mexico, and it made 17 recommendations to President Zedillo.
AI secretary general Pierre Sane had planned to deliver
the report to Zedillo personally. However, Sane claims the
government canceled a scheduled meeting with the president,
which was planned for Sept. 23.
"This shows that they are not interested in sustaining a
dialogue to avoid the growing violations of human rights in
Mexico," he said.
Among other things, the report cited abuses by law-
enforcement agencies against private citizens and an increase
in attacks on journalists. AI said the numerous cases that
have occurred this year include arbitrary detentions,
widespread torture, extrajudicial executions, forced
disappearances, and failure to punish government officials
accused of violations.
Responding angrily to the report, Zedillo said the AI
statement "does not coincide" with reports compiled by the
CNDH. During a trip to Europe in early October, Zedillo was
forced to defend the decision not to meet with Sane.
"He came to Mexico intending not to see me and to create
a scandal," said Zedillo. "I am profoundly offended."
According to Santiago Onate, Mexico's ambassador to
London, AI executives had expressed interest in meeting with
Zedillo, but they never submitted a formal request.
"If there was a breakdown in communication, it was on
their part," Onate told Proceso.
Meanwhile, deputy foreign relations secretary Juan
Rebolledo said guerrilla uprisings and political
assassinations in recent years have resulted in increased
attention on Mexico.
"It's a situation in which more cases of human rights
abuses are being reported, both real and untrue," Rebolledo
said in an interview with the Miami Herald.
However, AI spokespersons said Mexico's biggest problem
is its failure to take action against elected officials,
military personnel, and law-enforcement officers who practice
torture and engage in other human rights violations.
"In Latin America, there has already been an economic
reform and a political reform," said Morris Tidball, AI's
director of Latin American programs. "Now, Mexico and other
countries in the region must enact reforms to institutions,
especially the justice system." (Sources: Reuter, 09/24/97;
El Universal, Los Angeles Times, 09/25/97; Associated Press,
09/25/97, 09/29/97; Miami Herald, 09/29/97; Novedades,
09/25/97, 10/08/97; La Jornada, 09/25/97, 09/29/97, 10/08/97,
10/09/97; Excelsior, 09/29/97, 10/07/97, 10/09/97; Proceso,
09/28/97, 10/05/97, 10/12/97; The News, 09/26/97, 10/09/97,
10/15/97)
