Mexican Privatizations: Sold! To The Senator's Brother

A scandal over Fertimex casts doubt on government sell-offs

Curious. Three companies register to bid in the auction of a Mexican state-run fertilizer complex. But at the last minute, one bidder drops out, and another offers just 10 pesos. The winner: an investor group led by the brother of a senator close to the President. Price: $144 million, just a nudge above the government's estimate.

And curiouser. The winning group quickly falls apart, so the senator's brother takes as his new partner a mining and steel conglomerate, led by a businessman with equally close ties to the President. Their wives were old school chums.

So reads one chapter, just now being opened to public view, in Mexico's privatization story, once seen as a model for other developing countries. The revelations about the 1992 sale of the Pajaritos complex owned by state enterprise Fertilizantes Mexicanos (Fertimex) are reinforcing suspicions that many of the sell-offs under former President Carlos Salinas de Gortari went to friends and associates in rigged bidding (table).

DERAILED. The disclosures have stirred new calls to investigate such sales. And the cloud over past privatizations may hamper President Ernesto Zedillo Ponce de Leon's efforts to carry out new sell-offs of state enterprises. To attract private investment needed to upgrade Mexico's creaky infrastructure, Zedillo wants to sell ports, airports, railroads, and satellites. But skepticism about the process helped fuel nationalist opposition that derailed his plan to privatize the petrochemical plants of oil monopoly Petroleos Mexicanos (Pemex). Now, investors can expect slower going in new privatizations, partly because Zedillo wants to ensure that the process is seen as strictly aboveboard.

An example was the scheduled Oct. 9 sale of the Chihuahua-Pacific line of the Mexican National Railroads (FNM). As in the Fertimex case, all but one potential bidder dropped out before the final auction. But this time, when a lone bid came in far below the government's estimate of the line's worth, officials canceled the auction. The next test of the process comes on Nov. 29, when bidders will present offers for the Northeast line linking Mexico City to the U.S. border.

While Zedillo is taking steps to clean up new sales, investigations of earlier deals are being left to Congress, which has access to the mountains of privatization documents. Congress, dominated by the ruling PRI party, has dragged its heels, but the Fertimex case could set a precedent. The loudest call for an investigation comes from Rogelio Montemayor, the former PRI senator whose brother led the original bid. He says he wants to clear himself. Documents leaked to the press show that Montemayor, now governor of Coahuila state, was among the initial investors, but he denies any ownership in the plant.

Alonso Ancira, CEO of Grupo Acerero del Norte (GAN), the conglomerate that eventually took over the Fertimex plant, also denies that political contacts led to any favors. The plant lost $129 million through 1994, he points out, and his group had to invest $95 million to make the venture profitable. GAN has turned another company it bought during the Salinas privatizations, Altos Hornos de Mexico, into one of Mexico's most competitive steelmakers.

DISSECTION. So far, Congress has agreed to just two investigations. But PRI legislators halted the first before witnesses could be subpoenaed. That inquiry followed a trail of corruption at Conasupo, the state-run food distribution agency, when President Salinas' brother Raul, now jailed on charges of illegal enrichment, tax evasion, and murder, was a top official there. "Silence is still the rule of thumb," says Adolfo Aguilar Zinser, an independent legislator on the panel set up to probe Conasupo.

Congress also agreed to investigate the 1993 sale of TV networks to Ricardo Salinas Pliego, a businessman who is not related to the former President's family. Raul Salinas revealed in June that he lent $29.8 million to Salinas Pliego to help finance the purchase. Results of the inquiry are expected to be presented by the end of November. "The task is to dissect the origin of the capital," says Aguilar Zinser. Making sure the money trails are more visible would do much to revive confidence in privatizations.

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