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Oil and Robbers Make for a Volatile Mix in Mexico

The state loses more than $1 billion a year to criminals. An editor recently lost his life.

POZA RICA, Mexico (By Chris Kraul, LATimes) June 11, 2005 - The thieves are nothing if not brazen, backing their tanker trucks right up to refinery terminals and hauling away thousands of gallons of gasoline at a time.

They mix the good gas with junk additives, including solvents and used motor oil, then sell the adulterated brew as diesel or gasoline to service station owners across Mexico, who pass it on to unsuspecting motorists.

Mexico's state-owned oil monopoly, Petroleos Mexicanos, loses more than $1 billion in fuel sales annually to the thieves, government officials acknowledge. And officials at the oil giant, known as Pemex, are believed to be involved, receiving cuts of the profits for arranging the thefts or looking the other way.

"It's a grave problem that affects not just motorists but many workers and the financial health of the nation," said Sen. Lydia Madero Garcia, a member of a special legislative committee investigating Pemex who says company officials are probably implicated. "It is a culture of robbery that depends on many elements, including those who have worked or do work in the government."

The stakes in Mexico's contraband gas and diesel business are huge, which may be why the owner and editor of this town's muckraking La Opinion newspaper was killed gangland-style as he drove to his home in nearby Papantla on April 8.

Raul Gibb Guerrero, described by associates as a civic do-gooder who saw his newspaper as an instrument for improving the public weal, had uncovered what the paper alleged was a seamy, locally based contraband fuel racket that had spread over eight states. Gibb waged a four-year campaign to prod Pemex and local and federal authorities to take action.

Nationwide, the thefts may be sapping the government of as much as 11% of its gasoline, diesel and other refined fuels every year, Pemex officials have said.

It's also hitting the pocketbooks of Mexicans whose cars are ruined by the contaminated gas. Last year, Pemex paid out at least $700,000 to 3,200 motorists to settle claims.

Moreover, motorists are frequently defrauded at the pump, receiving 5% less gasoline, on average, than what the meter shows, according to Profeco, Mexico's consumer protection agency. In Acapulco, a city rife with rigged pumps, motorists routinely receive less than two-thirds of the gas they pay for.

The government of President Vicente Fox acknowledged the problems and last year sent army and police units to guard Pemex installations. The vigilance resulted in an 11% increase in the company's refining production for the rest of 2004, Pemex executive Juan Bueno Torio told reporters.

The troops and the cops are gone, but intense undercover investigations continue, government sources say.

Fox also formed a commission composed of four Cabinet-level secretaries to investigate the thefts and corruption. And he is pushing for a federal law to make it a felony to steal fuel, legislation that has been fought tooth and nail by the association of gas station owners and gas transport firms, who Maduro Garcia says profit handsomely from the contraband schemes.

The rackets take advantage of what prosecutors call "judicial loopholes," as well as lax internal controls and persistent corruption within Pemex, law enforcement and industry officials say.

"This is a serious problem that you see in no other area of production. In its gravity and dimension, it could not exist without the complicity" of high-level Pemex officials, said Rodrigo Roque Diaz, undersecretary at Profeco.

Pemex officials, including former director Raul Munoz Leos, have acknowledged that the scale of the theft and adulteration was possible only with the complicity of Pemex employees.

Many owners of Mexico's 7,000 gas stations — all trademarked Pemex but virtually all of them independent franchises — rebelled against Fox's efforts to randomly monitor the quality and quantity of sales at the pump. About 40 owners, who together control 1,500 stations, got a court injunction to keep the monitors off their property.

While acknowledging that some station owners are selling adulterated gas or less gas than the meter shows, Eduardo Knapp Aguilar, a director of Onexpo, the national association of station owners, told Proceso magazine this year that his group opposed random checks and new metering because Pemex would not certify the quantity and quality of wholesale gas it delivers to the members.

"The big problem is with Pemex," Knapp Aguilar said.

One former Pemex executive said that beyond outright thievery, the contraband fuel rackets also take advantage of Pemex "subsidies" — discounts on fuel that are given to agriculture, fisheries and shipping firms on the assumption that those industries create jobs and exports.

"The problem is that these people don't use fuel for what they say and sell it back to market for a premium," the former executive said.

Jose Antonio Herrera, technical control manager of Pemex's refining division, said the company considered the theft a serious and complex problem, involving corruption at several points along the supply chain, including pipelines, storage tanks and tanker trucks. "Complicity exists among Pemex personnel," he said.

But Herrera also said the company had made significant recoveries of stolen supplies in the last two years with a combination of police work, covert supervision and better technology for detecting pipeline leaks and pressure failures.

"We are improving controls," he said.

At La Opinion, Gibb's newspaper, much of the coverage focused on an "alternative fuels" business run by Martin Rojas near Poza Rica, which is one of Pemex's biggest refining centers and the site of much of the thievery.

Rojas ran what locals call Pemexito, or Little Pemex, a business in the neighboring town of Tihuatlan that included three huge storage tanks where adulterated fuels were mixed and stored, the La Opinion articles alleged. The Tihuatlan installation has been shut down for environmental violations.

Rojas has never been charged with fuel theft, and mixing or possessing gasoline with questionable additives is not a crime, although selling it is. But in March 2004, Rojas was charged and arrested by federal police on tax fraud charges. He disappeared after posting bond and is considered a fugitive.

Fuel-mixing installations owned by Rojas in eight states have been closed for alleged environmental and tax violations, La Opinion reported, in articles that won two Mexican journalism prizes.

Sources close to the investigation of Gibb's slaying said that before Rojas disappeared, he approached Gibb to make a plata o plomo offer, which roughly translates as a share of the profits from the gas sales — if the editor stopped publishing — or a bullet if he did not.

Among the theories being investigated by the federal attorney general's office is that Gibb was killed in retaliation for the articles or to silence the paper's critical voice, according to published reports. Drug traffickers, family members and local businessmen are also being looked at in connection with his slaying, the reports said.

Spokeswoman Eunice Enciso of the federal attorney general's office in Veracruz declined to comment on the case, saying only that the government had formed a task force to investigate the slaying.

Gibb was one of three Mexican investigative journalists who disappeared or were killed in early April.

Though she has no firsthand knowledge of the probe, Sen. Madero Garcia said she believed Gibb might have been killed for his editorial crusade.

"This is a mafia like any of the drug traffickers," she said. "Look who is benefiting. If you close the key to their enrichment, as a news reporter or a government official, they will make you suffer."

Profeco's Roque Diaz said the gas theft problem wouldn't be solved overnight.

"It has to do with a culture of impunity, a lack of oversight and financial discipline that has long been the rule in the energy industry," he said. "But we are making the effort and will arrive at a solution."