Sustainability in Global Business of PEMEX - Case Study Example

Sustainability in Global Business of PEMEX Introduction PEMEX has its main head offices in Mexico This is a government owned firm that integrated as a decentralized firm of the federal public administration. The company was established in accordance to the Mexican laws in 1938. The company has a mission of maximizing of the worth of the hydrocarbon assets of the country by accomplishing and fulfilling the demand for oil products in line with the quality provided in a reliable, sustainable and profitable manner. The company has its legal assets and charter, its intention is to implement the main strategic and central management of activities in line with state of oil market in the country. The company comprises of four subsidiary entities that practices production, exploration, commercialization and transformation activities for natural gas and oil in the local and international markets (Blowfield, 2013; p. 67). The company also conducts refinery of crude oil and supplies petrochemicals on top of conducting business overseas via PMI Comercio Internacional. This paper explores the sustainability of the company in the global business with major focus on environmental sustenance and economic stability. Positioning of the Country in Terms of Sustainability The country has positioned to provide assurance of the distribution of primary energy products and has therefore input to considerable change and growth in Mexico. In order to guarantee that the company would proceed to contribute significantly to the development of the nation, the company created a business plan in 2010 where the strategies were approved. The government aims to transform and recognize the company as an efficient, safe, modern, profitable, sustainable, transparent and modern firm is set forward. Through the organization the government has established a business plan which is the result of an attempt to focus on the fundamental plans that deal with the major aspects integral to describe the course and objectives of the organization. The business plan can be summarized by the diagram below. In satisfying the company’s and government’s objectives the company has recognized four routes of actions with various specific strategies. These include the growth, corporate responsibility, efficiency and management modernization (Lourdes, 2012; p. 3).        The Current Attitudes and Expectations of the Society The society has so much expectations and attitudes towards the organization and its contribution to sustainability. As a major element of achievement, the society expects that the government through the company to transparently comprehend the effect of their activities at the economic, social and ecological level. The main anticipation is to modify their management and operation to alleviate the potential risks in the society. PEMEX describes the corporate social responsibility as a devotion that goes further than the communal or environmental conduct created by the organization in sections where they work (Lourdes, 2012; p. 3). This is an area that must be integrated naturally into operation and investment choices and into the continuing process improvement. Thus the government uses the business plan as a reference point and taking essential factors as a foundation for sustainable growth of the community and the company. The IRS 2010 created by the state pays more attention on the constituents of the duties to the people and the community that will make it promising to attain a safe, profitable, dependable and sustainable process for the company and the community. Corresponding to the direct integration of the corporate responsibility and the expectation of the community into the business strategy and to solidify the efforts on this issue, ever since 2008 PEMEX has abided to the participation of the citizens with the objective of incorporating their ideas and opinions from the civil society to develop its performance in the environmental and social responsibility (Lourdes, 2012; p. 3). Group Participation by the citizens Before the process was accomplished, the group participation is furnished with the standard report created by the management of sustainable assets for PEMEX. Besides there is result comparison made by the government owned firm where the information collected is used to make agendas for meetings as presented to the Sustainable Asset Management procedural group. Using this information, the recognized group participation as well as the subjects of contention is applied to create questions in line with principles such as high priority where commitment with the members, codes of practice, bribes and corruption, social effect in the society, supplier requirement, strategies of climatic change and operation eco-efficiency are made known.  Besides, the optimal priority which entails management systems of the environment, transparency, philanthropy and corporate citizenship are put into consideration (Lourdes, 2012; p. 3). How the Laws on Sustainability Influence the Company’s Decisions In the past few years of the company’s operation the environmental concerns have taken center stage in Mexico. Elected officials and members of the public continue to seek ways to enhance building of a more sustainable energy in the community. Nonetheless, there is plenty of work to be done to support Mexico in the continuing stewardship on environment and fighting climatic change in Mexico City. The new leadership has vowed to hold a great deal of authority in helping Mexico to transform into a clean energy based on the new law on climate. A new legislation was signed into law prior to the G-20 Summit in Mexico and Sustainable development conference held in Rio which is likely to influence the operation of the company. This is because the government must show commitment to conform to the new laws by integrating the new laws in their operation to enable other companies to follow suit (Lourdes, 2012; p. 3). The latest universal law on the climatic change gives room for Mexico to set up economically effective systems such as creation of emissions trading that provides huge opportunities for the reduction of the greenhouse gas emissions that might transform the country into a clean energy nation. The law is a pointer, given that it determines the huge national target for reduction of emissions and the alternative to create a local emissions’ system of trading. With execution of this law, the country is taking a strict standoff point over climatic change that would make the country as the second state after UK to formulate a lawfully binding carbon target. Mexico has been known as one of the major oil producers and has a well established independent energy system via its offshore refineries (Lourdes, 2012; p. 3). And with the rising confidence that renewable energy can instigate growth of the economy, the government turned to be a pioneer in the optional energy and sustainability of the environment. PEMEX has a lot to gain and lose being a state owned company it has to lead while the rest of the companies follow. At times this might cost the taxpayer a lot of money or expenses. The congress of Mexico has until the end of 2014 to pass a legal amendment to open up to the private sector ventures. This is likely to influence the performance of the monopoly PEMEX. This means that the company will now have a competitor such as ExxonMobil and Petro China as well as Statoil which might have agreements to begin exploration of the untapped oil and natural gas of the country. It will be more prudent for the economy of Mexico to support the entrepreneurs to venture capital in fresh oil firms. Hence to exist they will have to be profitable and efficient. With time and success, the concept of home made Mexican oil firms would have the impact of outlining what needs to be changed in connection to PREMEX (Lourdes, 2012; p. 3).  Major Challenges and Opportunities Unique to the Industry Mexico has become an advocate for climatic issues in the current regime of President Felipe. In 2012 April the Congress created a the climatic change regulation which was the second most unique law globally, creating the framework to get its voluntary countrywide Greenhouse gas alleviation goal to have 30% by 2020 and 50% by 2050. The congress also determined the target of getting 35% of electricity with clean tech by 2024. Achieving these objectives will call for a major overhaul of the energy mix that depends majorly on 93% of hydrocarbons inclusive of the 60% in the energy industry. Solar, geothermal and wind energy are some of the opportunities available for the company and the country which are yet to be utilized to their total capacity (Crane & Matten, 2010; p. 39). Conventionally, the government of Mexico has made use of the state owned firms of the power sector as avenues for public policy to promote the fiscal policy or the industrial sector. The deployment of the renewable resources and clean technologies for local and international consumption has opened up opportunities for growth of new firms, generation of employment and moving toward a green growth economy. However, there is still no idea of urgency when it comes to reforms in the power industry, in spite of the scarcity of natural gas for the joint cycle formation and difficulties in satisfying the Greenhouse gas alleviation targets. As an alternative, even with the increasing opportunity for private venture, negotiations are being initiated over the organizational system needed to satisfy the renewable goals. Attaining these goals, whilst increasing the domestic rivalry implies restructuring will be necessary eventually. The gas and oil industry is also another issue (Kandachar, 2008; p. 47). Ever since 2004, production of oil has been on an acute decline reducing from 3.4 million daily barrels to about 2.5 million barrels per day in 2012. Going by the current rates, the reserves of oil are anticipated to take only 9.5 years to last. Similarly, the local demand has been on the rise and is anticipated to reach a high of 2.3 million barrels per day by 2015 hence creating a crisis. Moreover, Mexico imports nearly 50% of its gasoline and about 40% of its natural gas. The drop in production is especially worrying, given that oil revenues are essential to the solvency of government financial which accounts for about 35% of the state revenue. The high sustainable level of oil prices has clouded the net decline in the export of crude oil even though a considerable shift in the global oil market might lead into a critical financial turmoil. The fear and the perceived necessity to hike the oil revenue resulted into the energy reforms in 2008. The state currently depend on extracting income from petroleum output and sales as opposed than taxation revenue to finance the public expenditure. Consequently, the financial status of PEMEX is established by the market even though the policies of Secretariat of Finance and Public Credit under the current reign, 70% of net income of PEMEX net revenue are diverted into duties and taxes (Blackburn, 2008; p. 54). Therefore, in spite of the company being one of the top oil firms globally, the company is bankrupt technically, acutely limiting the potential for development and venture for creativity and innovation. Restoration of the financial soundness of PEMEX is essential to the future of the oil firm and this implies liberating the company from its current situation as the government cash source. Most analysts and political figures agree on the opinion that PEMEX is in serious need for reform more than any other private firm. As such, the company must adhere to the best global practices, be eliminated from the state budget, become independent and have its own assets and capital as well adopt the principles of corporate governance. However, it has generally been agreed that the government must continue to be the only owner of the hydrocarbon reserves of the country. An evaluation in the energy reforms of 2008 is now under process. In the 2012 political campaigns, various elements of the gas and oil industry were negotiated inclusive of the ownership and efficiency issues. A more refined evaluation has risen to put a challenge to the neoclassical opinion that nationwide oil firms are not efficient and the autonomist concept that puts into consideration any type privatization a huge menace to self-government (Willard, 2002; p. 97). This evaluation recognizes a distinct difference connecting the upstream business and the dismal outcome of the downstream branches. There are still concerns over the dismal outcome of the earlier consumer privatization in the major industries of the country which has made it impossible for any total privatization. Potential options for future sustainable development Reserving the idea of status quo and sustaining the legal coherence has been made more expensive by the denial to revise the Constitution to give room for some extent of private involvement in the energy sector. The oil industry is conceding to the incompetence whilst giving a high cost to pretend that it can work on its own. In actual fact, the world-class service firms like Noble, Halliburton, Schlumberger and Baker-Hughes work in collaboration with engineers of PEMEX to sustain the flow of oil. PEMEX has been noted to have paid more than $16 billion for the services in the oil field in 2007. PEP is regularly the top client of Schlumberger. The main element in the 2008 Energy restructuring has been the description of a new incentive based contractual system (Moore, 2010; p. 123). The framework was created to attract the top oil firms to the Mexican industry whilst sustaining the legal command integral. It depends on the fee charged per every barrel established in the process of bidding, where ownership of the hydrocarbons is in the hands of the Mexican government. Profits, production and risk are not distributed and there is no reserved booking for the firms. Hence, the new model of contract has not been of major delight to major oil firms. It has been used to low risk projects in which great deal of recovery rate are guaranteed. As opposed to having the Chevron or Petrobras collaborating jointly with PEMEX in the Gulf Mexican deep waters, bidding has gone as far as the mature fields with service firms like the Petrofac Facilities a management from the United Kingdom winning the auction (Rainey, 2010; p. 117). Bibliography Blackburn, W.R. (2008). The Sustainability Handbook: the complete management guide to achieving social, economic and environmental responsibility. Earthscan, London. Blowfield, M. 2013. Business and sustainability. Oxford: Oxford University press Crane, A. & Matten, D.(2010) Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press, UK. Kandachar, P., Halme, M.(Eds) (2008) Sustainability Challenges and Solutions at the Base of the Pyramid. Greenleaf Publishing Sheffield, UK Lourdes M. 2012. The future of PEMEX. Americas Society and Council of the Americas. Moore, S.A. (ed.) (2010) Pragmatic Sustainability: theoretical and practical tools. Routledge, UK. Rainey, D.L. (2010) Sustainable Business Development. Cambridge University Press, UK. Willard, B. (2002) The Sustainability Advantage: Seven Business Case Benefits of a Triple Bottom Line. New Society Publishers, USA Read More