Raúl Muñoz Leos
1940–



General director, Pemex

Nationality: Mexican.

Born: 1940.

Education: Attended Universidad Nacional Autonoma de Mexico.

Career: Du Pont México, ?–2000, various positions, eventually became president and general director; Petroleos Mexicanos (Pemex), 2000–, general director.

Address: Avenida Marina Nacional 329, Colonia Huasteca, 11311 Mexico D.F., Mexico; http://www.pemex.com.

■ Beginning in 2000 Raúl Muñoz Leos served as general director of Petroleos Mexicanos (Pemex), the state-owned Mexican oil company that had a monopoly over the country's petroleum reserves. President Vicente Fox appointed Muñoz Leos to the Pemex post to improve the efficiency and profitability of a company marred by inefficiency and corruption. Before going to Pemex, Muñoz Leos spent most of his career at DuPont Mexico, where he served as both president and general director. Muñoz Leos planned to bring this private-sector experience to Pemex.

DUPONT MEXICO

When Muñoz Leos took over at DuPont Mexico, the company mainly produced for local consumption. With the implementation of the North American Free Trade Agreement (NAFTA) in the early 1990s, Muñoz Leos was forced to revise his business strategy. NAFTA created both opportunities for exports and competition from imports. Muñoz Leos told Mary Suter of Business Mexico that "since NAFTA, our focus has been different in that all of our manufacturing operations must be internationally competitive and we design them for their optimum capacity." DuPont Mexico was no longer producing mainly for the Mexican market but also began to expand its exports to all of the Western Hemisphere as well as to Asia and Europe. In 1994 exports accounted for 31 percent of sales. By 1995 that figure had increased to 44 percent. Muñoz Leos looked more to the export sector because free trade resulted in increasing competition in DuPont's many enterprises, including fibers, paints, and pesticides. Muñoz Leos told Suter that "whatever we do, we have to consider all the global competitors that are with us in different fields. We have a lot of competitors because of our wide variety of products, but the common denominator is that all competitors are international, if not global. We are all competing on cost and to provide the best quality and the best service" (December 1, 1997).

Muñoz Leos believed that textiles would be the key to DuPont Mexico's export strategy. His company had the advantage of producing well-known fibers such as nylon, Dacron polyester, and Lycra spandex. He claimed that DuPont Mexico was developing a world-class quality concept in apparel manufacturing, which would lead export-led growth for his firm. On the other hand, products destined for local consumption were hurt the most, especially during hard economic times. Paint, for example, was too bulky for export. When the domestic market shrank, Muñoz Leos was forced to look for ways to reduce production costs and improve distribution.

While at DuPont, Muñoz Leos emphasized environmental management. During his time at DuPont, the company reduced atmospheric emissions in general and eliminated emissions of chlorofluorocarbons. Muñoz Leos also led the cleanup of heavily polluting operations. For example, Muñoz Leos spent $22 million to clean up DuPont's plant at Coatzacoalcos. He also reduced waste at the company's facility in the port city of Altamira, the base for the global manufacture of titanium dioxide. In Altamira the company invested $50 million to convert a sand by-product into a water-purifying chemical. Furthermore, under Muñoz Leos's leadership, DuPont Mexico organized product stewardship programs with customers, such as recycling drums used to transport chemicals. Of the environmental programs, Muñoz Leos told Suter, "this involves a lot of training and communication so that we ensure through our distributors and customers that products are used correctly and disposed of properly. From raw material to the end user, we take ownership of the correct applications of all products—for use, transportation, storage, and disposal" (December 1, 1997).

In the December 2000 issue of Business Mexico , Muñoz Leos shared many of his ideas about management at DuPont with the magazine's editors. He emphasized that productivity and training of personnel were key components of his management style. In regard to productivity, Muñoz Leos stated that "we look at productivity as another important element in competitiveness and we compare ourselves with international competitors so as to have the most aggressive benchmarks." He indicated that by setting high standards, DuPont would find better ways to increase the company's productivity.

Muñoz Leos emphasized the importance of the training and development of personnel, saying the company allocated significant resources to this area. He told Business Mexico that "we continuously provide courses, seminars, and special training sessions to help our employees strive for higherresponsibility jobs." At DuPont, Muñoz Leos implemented a program in leadership skills, first for the top managerial levels then for the entire population of the company. He believed that such a program helped to get employees to work together on the company's long-term objectives.

PEMEX

In 2000 Vicente Fox of the opposition Partido Acción Nacional (PAN; National Action Party) won the presidential election in Mexico, wresting power from the Partido Revolucionario Institucional (PRI; Institutional Revolutionary Party), which had won every Mexican presidential election since the Revolution early in the 20th century. During the election campaign Fox suggested that he might privatize Pemex. When he took office, Fox named Muñoz Leos director general of Pemex, citing his successful corporate background at DuPont. Like Fox, Muñoz Leos was an advocate of opening state-run industries to the private sector. After winning the election, Fox said that he would not privatize Pemex. However, he indicated that the oil firm needed to adopt a "business outlook" and become more cost-effective. Fox charged Muñoz Leos with transforming Pemex into the world's best oil company.

In 1938 the Mexican government nationalized the country's oil industry. Until that time, foreign oil companies from the United States and Great Britain had dominated Mexican petroleum production. In response to this foreign domination, the Mexican president Lazaro Cardenas had appropriated the foreign oil holdings in Mexico. The result was a state-owned monopoly known as Petroleos Mexicanos (Pemex). The government prohibited foreign ownership in the industry, and Pemex came to represent Mexican economic independence from powerful international corporations. Thus more than just a company, Pemex became a symbol of Mexican sovereignty. Expropriation Day continued to be celebrated in Mexico.

Pemex developed into Mexico's largest company and possessed some of the world's richest oil reserves. By the time Muñoz Leos became the company's director general in 2000, Pemex employed approximately 130,000 workers and had $40 billion in sales. The company consistently ranked among the world's top five oil producers. It was a major exporter of oil to the United States. Every gas station in Mexico was supplied by Pemex.

For much of its history Pemex had functioned as an arm of the PRI, Mexico's dominant political party. The PRI had used Pemex as a cash cow. Most of the company's profits had gone directly to the government, sometimes accounting for as much as one-third of the Mexican government's revenues. This diversion of Pemex's profits often led to lack of investment, because the company had to obtain government approval to fund new projects. Such constraints created a company that lacked incentives to expand, which in turn led to limited oil exploration and lower production levels. For example, despite great potential reserves in the Gulf of Mexico, Pemex did not develop the technology for deepwater exploration and extraction. This situation stood in stark contrast to the case of the Brazilian state-owned oil company Petrobras, which became a world leader in deepwater technology.

Pemex suffered throughout its history from large-scale corruption, sometimes amounting to more than $1 billion annually. Corruption not only siphoned off money but also inhibited new projects. Officials knew that any new, large-scale project would only invite corruption, leading to delays and spiraling budgets.

The Pemex executive Othon Canales Treviño, who was in charge of competitiveness and innovation, complained of the corruption and inefficiency at Pemex. He was quoted as follows by Alexander's Oil and Gas Connections : "We want to act like a company. Pemex isn't a company. It isn't Pemex, Inc. We're not a government ministry either. We are something weird. Our behavior changes depending on whom we are dealing with. To the Finance Ministry, we're their biggest taxpayer. To Congress, we're something else. To our customers, sometimes we're an opportunity and sometimes we're a threat" (February 20, 2003).

TRANSFORMATION OF PEMEX

Within months of taking over at Pemex, Muñoz Leos emphasized that he would restructure the company. He sought a cultural transformation at Pemex by ending the "spend your budget approach" and implementing an attitude of productivity, cost reduction, and competitiveness. He hoped to free Pemex from the government budget, end the public sector culture, and operate the company as if it were a private company. He wanted the company to be concerned with the quality of its operations, not just the quantity. He told Simon Webb of Business Mexico that "we are engaged in an ambitious program to improve operations and efficiency." Muñoz Leos indicated that his goal was to achieve such a change within five years. Among his initial steps was improving Pemex's refining operations and its storage and distribution practices.

There was initial concern about Muñoz Leos's appointment. Critics cited his lack of decisiveness and oil industry experience. Roger Diwan of the Petroleum Finance Company told Jennifer Galloway of Latin Finance , "I don't think he can change the culture. You need someone very strong at the helm. He wants to change the culture of Pemex over 10 years. Unless he wants to come and cut the heads off of a lot of people, I say to him 'good luck.'"

Muñoz Leos and Fox witnessed the difficulties in changing Pemex when one of Fox's first steps was to make four new appointments to the company's board of directors. The board had been filled with government and union leaders. Fox, however, appointed four prominent private businessmen to the board, an act that received much criticism. Some critics demanded that Fox remove these newly appointed board members, but the president initially refused. Strong opposition in the Mexican Congress led the president to remove his controversial appointees.

Muñoz Leos began to carry out Fox's orders by negotiating a short-term financing solution to lighten Pemex's tax burden. He claimed that the development of strategic projects was limited by a lack of money. To a large degree, this lack was due to the fact that since an oil crash in the early 1980s, the Mexican government had heavily taxed the company. The result was annual losses of more than $1 billion. In March 2001 Muñoz Leos told Business Mexico that "Pemex hasn't grown in the last 15 or 18 years and we have to reverse this tendency of stagnation toward vigorous growth that will allow us to have more resources to contribute as taxes." However, the new Pemex boss was quick to point out that such growth required more money and that the government would have to channel more funds into new projects or else Pemex would have to cut back on production. Furthermore, Muñoz Leos argued that a lack of investment also led to problems of safety and pollution because the company could not afford to properly deal with these issues. For example, major explosions in 1984 and 1992 killed more than eight hundred persons in Mexico City and Guadalajara.

While many Mexicans saw Pemex as a symbol of their country's economic independence from foreign capital, Muñoz Leos claimed that Mexicans themselves had to accept part of the blame for the company's woes. He told Tim Weiner of the New York Times that "it is us, the Mexicans, who have stunted the growth of Mexico's oil industry" (February 1, 2003). Muñoz Leos also sought to reestablish links with foreign oil companies by forging alliances with the private sector in areas such as petrochemicals and oil refining. While Mexican law prohibited private ownership rights, private domestic and foreign firms were able to sign service contracts with Pemex to provide services such as drilling wells. Muñoz Leos argued that without foreign investment, production levels would decrease, and the decrease would hurt the Mexican economy.

Another problem that Muñoz Leos faced was that Pemex employed too many people. Many of the company's employees had little real purpose. Pemex had approximately 130,000 workers when Muñoz Leos took over, twice the number actually needed. For example, Pemex employed approximately two times the number of workers as the state-owned oil company in Venezuela, which produced roughly the same amount of oil. The government had often used Pemex jobs as a tool of political patronage, rewarding loyal followers with jobs in the Mexican oil industry. These jobs were much sought after, because the government provided many attractive and costly benefits, such as free hospitals and schools for employees. Such a system can be dangerous, because unqualified workers sometimes get jobs. Such inexperienced employees, usually family and friends of existing workers, often caused accidents at Pemex facilities. In addition, Pemex was notorious for "no-show jobs," in which people who no longer worked for the company continued to collect a paycheck by providing a percentage to union bosses. Muñoz Leos asked Galloway, "How do you tell a significant portion of your staff that they don't have a job any-more? That takes some doing." In particular, Muñoz Leos faced a difficult task in cutting jobs because the Pemex labor union was very strong and resisted any attempts to reduce the company's workforce.

In addition to reducing the size of Pemex's workforce, Muñoz Leos hoped to improve the quality of the company's management. He emphasized that he would hire qualified and driven managers to run Pemex. He told Galloway, "We will be making personnel changes as required, starting with strengthening our corporate staff so that we can provide stronger leadership and exercise more discipline and control in operations and projects."

In addition to dealing with the issue of excess employees, one of Muñoz Leos's priorities on taking over at Pemex was to make the company's four operating groups work together more efficiently. In 2001 Muñoz Leos told Webb, "What we wanted to do is establish solid guidelines and proper controls to create greater coordination between the units. Pemex has not grown for 18 years and our strategic plan is to strengthen each of the separate units to create a whole that is more than just a sum of its parts."

By 2003 Muñoz Leos had admitted that change had come slowly but surely. He told Weiner, "You turn the battleship's wheel many times to turn the ship one degree. We are working on a culture change. The focus of our change is to help Pemex be able to compete with the world leaders in the oil business" (February 1, 2003). Despite the slowness of change, Muñoz Leos did achieve a certain degree of success over his first several years at Pemex. For example, in 2003 he obtained $4 billion from the Mexican government to expand production. In that year Pemex output reached an all-time high, its reserves were growing, and some private-sector participation had begun.

Even with the influx of money, Pemex did not have enough capital to produce enough oil for the Mexican market. Despite its vast petroleum deposits, the country continued to import gasoline. Because the company's refineries were running at full capacity, in 2003 Mexico imported one-fourth of its gasoline from the United States. Many experts believed the changes were too little and too late. David Shields, an energy expert based in Mexico City, told Brendan Case of the Dallas Morning News , "The changes needed to solve this problem are taking place too slowly to correct the trend and eliminate the risk of collapse" (September 20, 2003).

The independent oil analyst George Baker summed up the challenge facing Muñoz Leos. He explained to Weiner, "Here's a man who comes in from the private sector, from DuPont, which meets international standards as a business, and he faces political problems that would never apply in a business context" (February 1, 2003). Baker later elaborated to Case that "industrial logic points in one direction for Pemex. Tradition, vested interests and populism point in another" (September 20, 2003).

See also entry on Petroleos Mexianos in International Directory of Company Histories .

sources for further information

Case, Brendan, "Pemex Must Change or Die, Observers Say," Dallas Morning News , September 20, 2003.

Galloway, Jennifer, "Mexico's Capital Connection," Latin Finance , May 2001.

"New Business: Pemex Rebirth," Business Mexico , March 1, 2001.

"Strategy: Productivity," Business Mexico , December 1, 2000.

"Strategy: Training," Business Mexico , December 1, 2000.

Suter, Mary, "Advanced Chemistry: Exports and Local Sales Add Up to Potent Formula for DuPont Mexico," Business Mexico , December 1, 1997.

"To Change Mexico, Fox Must First Change Pemex," Alexander's Oil and Gas Connections 8, no. 4, February 20, 2003, http://www.gasandoil.com/goc/company/cnl30873.htm .

Webb, Simon, "Pemex Shake-up," Business Mexico , April 1, 2001.

Weiner, Tim, "As National Oil Giant Struggles, Mexico Agonizes over Opening It to Foreign Ventures," New York Times , February 17, 2002.

——, "Mexican Energy Giant Lumbers into Hazy Future," New York Times , February 1, 2003.

—Ronald Young



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