Miguel Ángel Servín
Chief Procurement Officer
View from the Top

Pemex Procurement Focuses on Transparency and Competition

Wed, 01/20/2016 - 10:59

Q: What were the main objectives given to you for the first six months of your new role, and why were these selected?

A: We are working on a new scheme for PEMEX’s procurement processes, focusing on three main goals: transparency, certainty, and competition. Some important achievements have been made under the current scheme, which is a centralized procurement model, but there is still room for improvement. There are windows of opportunity that we need to work on. In the area of transparency, for instance, we are working on a new electronic platform that will allow us to track the entire process. PEMEX's Procurement Division can derive enormous benefits from incorporating paperless culture into its supply chains. Promoting the use of an electronic platform will increase security and transparency. Information will be more reliable and easier to process. Participants can be sure their information is safe, as only authorized people will have access to it. We are also promoting a figure called Social Witness, an independent observer that we will use in some of our bidding processes as a strategy for improving transparency, impartiality, and compliance with the legal framework. So far, these have been successful in other public entities, and PEMEX believes it can successfully appropriate this mechanism.

When it comes to promoting competition with new participants, we consider the fact that we already have many suppliers to be an advantage. Indeed, competition is a key element to have a successful procurement process. Another element we are focusing on is planning, because it is the cornerstone that could make this process successful. It is important to map out a strategy with the main users of the procurement platform, PEMEX E&P and PEMEX Industrial Transformation, for the procurement process to be efficient. For this, PEMEX requires time. We are currently working on several strategies, all of which seek to turn away from direct awarding, and looking closely at the option of tenders and bidding rounds, which could give us better results, help us achieve the change we are looking for, use our resources in a better way, and be more efficient overall.

Q: Many suppliers have expressed concern over the difficulty to align their global equipment planning with PEMEX’s comparatively short planning cycle. Will you be planning procurement more in advance, and how are you going to coordinate with PEMEX E&P and Industrial Transformation to do this successfully?

A: We are taking part in working groups to prepare our plans one year in advance. Although this is the idea, the timeframe is subject to financial resources. The best practice in the world, according to the Organization for Economic Cooperation and Development (OECD), involves suppliers and users having a clear idea of what they want to purchase, how they want to do so, and when. For large projects, we will organize meetings with suppliers and users where we will explain the entire process and provide them with the information they need to plan properly. This is a massive shift in culture at PEMEX, and we hope for it to be successful.

One of the difficulties that PEMEX encountered in the past was a lack of communication between the procurement and financial areas, and we are seeking to solve this issue. The newer and stricter processes and rulings will provide us certainty in financial resources for projects, allowing for more order in the company.

Q: What should suppliers expect considering that not many projects have been awarded lately and the rest of 2016 is not looking particularly promising?

A: The financial situation is not the best for us, and we are counting on executing some projects, mainly exploration and production projects, which will be launched through bidding rounds with a focus on the promotion of open competition.

Q: What is PEMEX going to do in order to ensure that its suppliers can survive until they are paid?

A: We started to pay our suppliers, mainly SMEs, three months ago. In fact, we receive financial support from the Ministry of Finance, which goes exclusively toward paying this debt. At the end of the year, we expect most suppliers to be paid.

Q: How do you plan on developing your local supply chain, and how will the relationship between PEMEX and its suppliers evolve?

A: PEMEX has a well-developed local supply chain involving companies ranging from SMEs to large suppliers. The challenge is now to maintain this local supply chain given the entrance of international competitors in the Mexican oil and gas sector. In order to maintain our local supply chain, we are developing initiatives regarding work programs with industrial associations and chambers; initiatives for minority groups of suppliers, such as SMEs, women-led enterprises, and local companies; the coordination of petroleum clusters in regions where PEMEX has an important presence at all economic levels; and specific projects for the development of suppliers, such as the pilot project with CEMEFI, the Mexican Center for Philanthropy, to encourage social responsibility among suppliers. All of these initiatives are based on a mutual benefit vision without overlooking PEMEX's legal obligations regarding national content in exploration and production.

Q: How does PEMEX compare to the procurement areas of the IOCs, and how can you ensure a successful cooperation in the case of farm-outs and other associations?

A: The PEMEX Procurement Office is undergoing several changes, many of which are oriented towards facilitating cooperation with another office. We are comparing our processes with our peers, and implementing the best practices used by IOCs. These involve, among others, the use of the correct assignments, electronic means, auctions, independent observers, public consultations, and the promotion of competition. The public consultations will provide us with industry feedback, allowing us to improve the bidding processes. We expect these new best practices to be implemented soon. We know this is important to guarantee success in our associations with other operators. We are also empowering our officials, teaching them about the industry and training them in procurement practices.

Q: Will the digital procurement system function in a similarly transparent way to CNH’s portal for the licensing rounds?

A: Yes, and the number of bidders and their economic proposal will also be accessible, which is different to CNH’s portal. The same goes for auctions. We will seek to keep everything as transparent as possible. We expect this to be up and running in two months.

Q: To what extent is PEMEX going to become proactive in its search for the best suppliers and service providers around the world?

A: We are looking to become more proactive. PEMEX should change the way in which it sees its suppliers. Direct Awards have not proven to promote transparency and competition amongst providers. The new scheme will not only attract new players, but it will also give the industry a new perception of PEMEX.

Q: How will you work to improve the link between the procurement and legal divisions, which becomes increasingly important as PEMEX takes on riskier projects?

A: The legal division has an area dedicated to risk that helps us plan projects and provides us with feedback. Prior to any project, the legal department reviews the contracts and all possible legal implications for PEMEX and the potential supplier. The latter can be ensured that the allocation of risk is in line with international best practices. We have redefined our early termination clause for every new project.

Q: What will be the main difference between the way the procurement process will operate if next year the oil price is at US$30/b or US$50/b?

A: The procurement process will remain the same, regardless of the oil price, with the purpose of improving transparency, certainty, and promoting competition amongst providers.

Q: How will you ensure that price is not the sole focus of your procurement activities?

A: Our increased focus on quality is evident under the new scheme. We are currently in the midst of reevaluating all of our suppliers to ensure they comply with our new terms and conditions, shifting the focus to take into account quality and reliability through an overall view of business success.

Q: PEMEX had more than 120 procurement offices before the reform. How many do you have today, and how many can you still remove the moment you shift to an electronic system?

A: We have office locations around the country, each of which has a strategic focus. We intend to reduce that number to one that can attend all of E&P and TRI’s needs. We are looking to have local acquisition centers (CAPAs). CAPAs will be dedicated to providing acquisition, management expertise, and a secure, high-quality, and responsive service at a local level. The CAPAs will ensure that procurement activities meet the performance standards established in PEMEX´s acquisition program goals, objectives, and contract requirements.

Q: What can PEMEX suppliers expect from the NOC in 2017 and what will you expect from them?

A: We believe that our suppliers are important stakeholders. This demands from us a continual improvement in quality, transparency, certainty and competition. We expect to bring new players into the field.