México Evalúa Keeps Pushing for Better Governance in State-Owned Enterprises

The Center for International Private Enterprise (CIPE) recently sat down with members of one of Mexico’s leading nonpartisan think tanks, México Evalúa, to discuss the organization’s work and how it relates to CIPE’s anti-kleptocracy efforts in Latin America.

Regulation and Economic Competition Program Coordinator, María Fernanda Ballesteros and Institutional Development Officer, Liliane Mendoza, shared how México Evalúa is focused on increasing civil society’s participation in improving the quality and effectiveness of government operations and policies. One of their most important projects is an initiative to promote better governance and transparent management of Mexico’s two largest state-owned enterprises (SOEs) in the energy sector, Petróleos Mexicanos, or Pemex, and the Comisión Federal de Electricidad (CFE). In the interview, México Evalúa highlights how recent changes in the government’s approach to energy sector SOEs have underscored the relevance of this initiative.

With CIPE support, México Evalúa produced the Corporate Transparency Index for State Productive Enterprises in 2019 and most recently the State Surveillance Map for Productive Enterprises in 2020. Both publications have served as important tools to assess and improve SOEs in Mexico and to provide lessons learned to CIPE’s network of partners throughout the region. This interview is part of a series with CIPE’s partners in Latin America working on improving transparency and governance in SOEs.

Note: This interview took place in November 2020 and has been edited for length and clarity.

Can you describe the work you do at México Evalúa to improve governance and combat corruption in Latin America? Can you tell us about your projects related to CIPE’s efforts to combat kleptocracy in the region?

At México Evalúa we analyze transparency mechanisms in the different areas that we are engaged in. For example, in addition to our projects to improve public accountability, transparency in justice, security, and anticorruption, we also conduct research to identify transparency issues that are not being addressed and provide recommendations to improve government programs.

The energy sector is another area that we cover. In Mexico, we are at an inflection point as the federal government is now promoting giving up renewable energy to favor its SOEs, essentially going back to what was previously established. In that context, it is going to be hard work for us to push back against some of the ideas the current government wants to implement as we have international commitments that require models of renewable energies, instead of only focusing on hydrocarbons.

We are also working on a project with CIPE regarding the future of work in the region. Specifically, we are conducting research on how the federal government can implement new technology platforms that are sorely lacking in order to provide public sector goods and services.

Furthermore, we use social media and articles published in various media outlets to inform the public about what we are doing, what we are promoting, and what some of our recommendations are for the different topics that we work on. In light of the ongoing COVID-19 crisis, we have been conducting new research analyzing the government’s management of certain programs during the pandemic.

We firmly believe that collaboration among different stakeholders is essential in order to raise awareness. In this sense, we collaborate with other organizations that work on similar topics and encourage knowledge-sharing among other civil society organizations that promote transparency and accountability.

Corruption, or the abuse of entrusted power for private gain, affects countries to varying degrees around the world. To what degree is it a problem in Mexico and what impact does it have on Mexico’s democratic institutions?

Our analysis is not that broad, so it is not easy to draw general conclusions. If you want a very general opinion, I would say the open market in the energy sector, both hydrocarbons and electricity, has created some controls that are characteristic of a market economy.

Right now, the way these SOEs are set up is a breeding ground for corrupt entanglements. Some of the practices that the market would not allow are coming back, such as more discretion and more concentration of power. This is largely because the legal and institutional framework is one created for an open market model. But essentially the government is acting in favor of these two SOEs and has enacted counter reforms by closing the market in favor of these two entities.

That is why it is not only important to focus on the design of those relationships of accountability in SOEs, but also how they work, how they are implemented, and how the concrete mechanisms work. Both SOEs have productive activities but because there are also a lot of public resources coming into these companies, the efficiency with which resources are being used is very important.

In addition, the procurement process is important because that is one of the main ways SOEs can construct corrupt networks. Seeing the governance and how decisions are made, you have a sense of how much discretion, how much political interference, and how unproductive they can be. I would love to definitively say that Mexico is on the “right side” of kleptocracy, but this would require better implementation of transparency and accountability measures.

It sounds like if the rules are followed in Mexico, corruption will not occur very often, is that right? Or do you believe it is more a question of enforcement and making sure mechanisms are working?

I think it is a little bit of both. It is primarily about enforcement mechanisms working and the rule of law in general. Even under the past administration, which was very keen to promote the open market model, there were a lot of corruption issues. While I think it can get worse under the current approach, the problems still existed whether it remained an open or closed market. The difference is that it gets worse when you have leaders that want to have political control over these SOEs and spend their money for political purposes.

On this idea of the government going backwards from an open market approach, it is worth paying attention to what will happen to existing agreements Mexico has with other countries such as the USMCA, the new North American free-trade agreement. With the closure of the open market in the energy sector, attention has been shifted to the fate of these agreements. This is another topic that we need to research because it is not just about what the government wants to do by itself. Aside from local and federal accountability mechanisms, the government must also adhere to international standards set forth in these agreements.

What is your approach for working with State Owned Enterprises (SOEs) in Mexico?

Our overall approach has traditionally been focused on three corporate governance aspects, using the OECD framework:

  1. How the state is as an owner (those entities that represent ownership for the state), and aspects regarding the correct functioning of markets;
  2. How the state intervenes or does not intervene in the economic aspects of the markets;
  3. Social or corporate responsibility issues (particularly social, environmental, and corruption-related).

Our work for the past two years has been largely focused on collaborating with decision makers and incorporating our policy recommendations into their agendas. We promote the knowledge resources that we have by doing interviews with key stakeholders from Congress and other federal entities that work on specific topics.

However, with the government enforcing a closed agenda on many topics including the energy sector, seeking close collaboration with them to adopt better practices in an open market has not been as effective. Since we believe that this anti-competition vision would negatively affect Mexicans by providing them with worse services and endangering all energy services, we have considered going more on the offensive to address a larger audience about how poor governance in SOEs can affect their day-to-day lives.

So in our current project with CIPE we will be focusing more on case studies that give examples of some of the social, environmental, and economic impacts that SOE decisions and governance issues are having. This will include telling the stories behind these case studies in order to give a more human aspect to what is happening at these companies and how it affects citizens’ daily lives.

A high level of political interference has weakened the institutions intended to be independent and merit-based. We want to be as objective as possible to show the negative impact that such decision-making in the energy sector has on Mexican society. In previous years, we have provided policy recommendations for how to change the status quo, but given the current political trends in Mexico we need to change our tactics to be successful.

Can you describe your existing relationships with government and SOE officials? How have those relationships affected the progress of your transparency initiatives?

Collaboration with Pemex, regulators, and public officials still exists, and we want to maintain these relationships as long as those doors remain open. There are professional public servants that have worked all their lives in the energy sector and are prone to listen to our recommendations, so we are still interested in maintaining those contacts. However, given the political climate and the policy change in the energy sector, we are aware that the progress we had made towards public policy implementation might be slower. So we are being more strategic in the political sphere and trying to maintain our existing relationships within the institutions as long as they are willing to work with us.

What have been some of the biggest obstacles and largest successes related to your SOE transparency initiatives in Mexico?

I think that one of the greatest challenges, or something that has been very sad to see, is how weak Mexican institutions are. For example, by fostering our relationships with the energy regulators we helped create working groups and provided policy recommendations to improve their work. Yet, once all that is established, the people in place change, sometimes even due to government intervention like making officials resign, and we have to start over. So while we still have certain working group efforts, they have been disappearing over a shockingly short amount of time.

In terms of successes, I think México Evalúa has positioned itself as one of those organizations that speak to a broader audience. We present our messages in an effective way and are now expanding to target young people in order for them to better understand how the current situation affects their lives and encourage them to get involved to enact change. As interest continues to grow, the main question has been how we can spread information to the public in a less technical way like storytelling. So, while it has been a huge change in terms of the work we do, because of the audience we have to address, I think that it has also been a success. [We are] expanding the energy-related discussion, which is traditionally very technical in Mexico, to reach a broader audience with simpler language.

How have you benefited from working on these issues with local, regional, and global partners? How are these partners important to your organization?

We have benefited tremendously from our exposure to other organizations in the region as we have found that our countries have a lot in common. For example, in Argentina where they have gone back and forth between a closed market and open market approach, or in Venezuela where closing borders and markets has led to an increase in corruption issues.

It is been great being able to hear those experiences and share best practices because even if we all follow OECD or World Bank guidelines, having those local partnerships helps make our work more tangible. Just hearing about other Latin American countries’ experiences and how things work can be extremely beneficial to our work as most of their issues are related to enforcement and rule of law issues that we also face.

Apart from our CIPE partners, we have also collaborated with other organizations in Mexico, primarily with environmental and consumer organizations. With corruption being such a big issue here, most organizations in Mexico have some kind of corruption component in their research and that has always been our way to relate to them.

In our case, due to our focus on competition and regulation issues, we have a lot of interaction with public and private industry alike. With that said, it has always been hard to bring both to the same discussion table due to their differing values and objectives. While it is sometimes difficult to draw a line between them, I also think it is important for us, as an independent organization, to be neutral and help reduce the extremes at both ends of the spectrum. We have become a reliable source and people on both sides respect our work, which has allowed us to act as an intermediary.

What’s next?

Going forward, I think that we will also be making an effort to bridge the gap between decision makers and the general public by educating audiences on what is happening in the energy sector and how that affects consumers.

We are at a turning point in Mexico. You see that it is no longer effective to just influence decision makers because they are not hearing other actors and are instead simply continuing to follow their own ideas – affecting a lot of people and benefiting certain interest groups along the way. As a think tank, when you start losing hope of having an impact on decision makers and of accomplishing your work you have to learn how to adapt and find other ways of doing things or getting things done.

It should be noted that we are not alone in this change as many organizations are also making this strategic shift. The private industry is going to court more frequently and environmental organizations are increasingly taking legal action. Like I said, I think the country is at a turning point, at least regarding the energy sector, because not only is closing the energy sector a priority for the government, but there is currently a lack of resources being focused on the energy sector and a lot of resulting social unrest.

Cover Photo: Pexels