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Ex-Pemex CEO ready to testify on Mexico's corruption scheme

Jorge Guerrero/AFP

Emilio Lozoya is transfered to a police van in Marbella, Spain on Feb. 13.

- Lozoya is expected to testify about corruption under his watch
Critics say Lopez Obrador may use the case against opponents

By Justin Villamil/Bloomberg

Petroleumworld 07 27 2020

The extradition of Emilio Lozoya, the former head of Mexico's state oil company, is roiling a nation not accustomed to seeing its politicians in handcuffs.

Earlier this month, Lozoya was extradited to Mexico City from Spain, where he was arrested by local police in February after fleeing his country and hiding for almost a year.

The former executive and political operator has been accused of allegedly taking millions of dollars worth of bribes, but has become a protected witness and is expected to offer testimony about corrupt practices during his tenure.

President Andres Manuel Lopez Obrador said at his daily press conference Friday that Lozoya has already given initial testimony that bribes were paid to lawmakers to pass President Enrique Pena Nieto's landmark energy reform that opened the industry to private investors in 2014. The corruption scandal also involves alleged kickbacks by Brazilian construction company Odebrecht SA .

About the bribes, Lopez Obrador said “it will be very important to find out how much and to whom.” Local media has named several top officials in Pena Nieto's cabinet, as well as opposition legislators as allegedly being involved, citing leaked testimony from Lozoya.

The top prosecutor's office declined to comment. Mexico's opposition PAN party said it's committed to fighting corruption and that Lozoya's testimony is a “smokescreen” to hide the government's mismanagement. Pena Nieto's PRI party said in a statement that it won't protect any member that may have been involved in corruption.

Here are some key points to watch for as the probe unfolds:

Why is this case taking place now?

After issuing an arrest warrant against Lozoya in May 2019, Mexico finally discovered his whereabouts when he was arrested by the Spanish police in Malaga on corruption charges.

The executive's recent extradition could represent a long-overdue reckoning for Mexico, which has failed to investigate the dealings of Odebrecht, the company at the center of Latin America's largest-ever corruption scandal, in any meaningful way.

In Lopez Obrador's telling, Mexico's investigation has been a long time coming. Odebrecht officials pleaded guilty to bribery in 2016, admit ting in testimony that Mexico was among the countries where it had paid bribes. The case toppled governments from Brazil to Peru as countries opened investigations, but there has been no such Mexican probe until now.

Who could be affected by his testimony?

Senior officials during the Pena Nieto administration are the most likely candidates to come under scrutiny from Lozoya's testimony. While the former president hasn't been accused of anything, Lozoya was a key member of his inner circle before the election and was later appointed by him to head Pemex.

Lopez Obrador himself has sought to tamp down speculation that the probe will go after Pena Nieto, and has even floated a people's referendum to decide whether former presidents should be tried for corruption. However, on Friday he said the scandal stretches back as far as the administration of former President Felipe Calderon, who governed between 2006 and 2012, and that prosecutors should be allowed to call on whomever they want to testify.

Fabiola Navarro, a researcher at UNAM Institute for Legal Research, has argued that because of Pemex's structure, at least ten then-administration officials should be called on to testify in the case as well. Among them are former Pemex board members, including former energy minister Pedro Joaquin Coldwell, former finance minister Luis Videgaray and former economy minister Ildefonso Guajardo. None of them has been accused publicly by prosecutors of any wrongdoing.

Is this Mexico's own Lava Jato?

In Brazil, Operation Carwash -- or Lava Jato as it was called in the country -- was turned over to investigators with tremendous latitude and independence to go after Brazil's ruling elite. Local prosecutors partnered closely with their counterparts in the U.S., which helped the Lava Jato cover more ground.

In Mexico, the situation is different. While Lopez Obrador himself doesn't directly control the investigation, Lozoya's testimony is still happening under the auspices of his administration and could be used as a political weapon. Because of that, Lopez Obrador has been criticized by some anti-corruption groups and pundits for focusing on Lozoya and ignoring allegations of impropriety within his own cabinet.

In the most high profile of those cases, involving the head of the state utility company Manuel Bartlett, Lopez Obrador publicly backed the executive against accusations that he has amassed a real-estate portfolio far beyond the assets he reported in a public declaration. Bartlett denied the accusations in a May interview with Bloomberg News.

Still, critics say Lopez Obrador is turning a blind eye to corruption in his own administration to focus on pursuing political enemies. In Brazil, politicians never had that luxury.

What does the president have to gain or lose from Lozoya's testimony?

The testimony has the potential to be a boost for the administration of AMLO, as the Mexican leader is known. And with less than a year to mid-term elections, he could use a win. His popularity has sagged amid the economic collapse brought on by the spread of the coronavirus. The country is heading toward its worst economic contraction in nearly a century.

Still, a sprawling probe into his rivals could backfire for Lopez Obrador as some critics lambaste him for an apparent double standard: refusing to look into accusations against members of his own party while setting his sights on the opposition.

What about Pemex?

Lozoya's testimony may lead to Pemex itself becoming an investigation target. Allegations of high-level corruption have long plagued the embattled oil company -- which is currently dealing with other issues, like paying down over $100 billion in debt in the midst of an oil price slump. Any revelations of wrongdoing that come from Lozoya risk embroiling the company in a further-reaching inquiry.

For now, Pemex might be in the clear. Shamaila Khan, the director of emerging-market debt at AllianceBernstein in New York says investors have mostly priced in Lozoya's testimony, and that few expect a probe to extend to those currently running the company.

Still, an extensive investigation might mean a headache for the company at a tricky moment.

By Justin Villamil from Bloomberg
07 24 2020



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