Arturo Henriquez
President and CEO
Integrated Trade Systems
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View from the Top

Streamlining PEMEX's Procurement Process

Tue, 01/22/2013 - 14:55

Q: What are the main challenges that suppliers and service providers face when contracting with Pemex?

A: The public bidding process is very laborious and complex, and requires a tremendous amount of procedures that are not necessarily aligned with global best practices in this area. As a result of the high level of bureaucracy and redtape involved, the bidding process becomes ine·cient.

Q: What is the role of Integrated Trade Systems (ITS) in streamlining the procurement process?

A: ITS was established to create value for Pemex by ensuring that the company is able to procure products and services at the best market rates and conditions, such as short delivery time and improved legal and technical compliance. We have formulated macro contracts, called framework agreements, that enable the NOC to perform direct purchases that are in compliance with the law. These framework agreements allow the process to become faster, more e·cient, and more transparent, while facilitating faster communication between Pemex and its suppliers.

Q: What are the main requirements that suppliers and service providers have to meet before they can enter into a framework agreement?

A: Pemex needs to have a direct procurement requirement for us to start overseeing negotiations with any company that could satisfy this need. Once the need is confirmed, the user within the Pemex subsidiary asks ITS to negotiate a framework agreement with the company that would meet this need. We certify their reliability and financial strength, which is a prerequisite for them to be able to establish a long-term relationship with Pemex. ITS negotiates with the company, without discriminating on its national or international background as long as it complies with our requirements, and establishes the range of products and services that it can directly sell to Pemex subsidiaries under the framework agreement. We audit prices through outsourced auditors and make sure that we get the best price according to the size of the company and the deal struck, with the possibility to cancel the contract if we find inconsistencies or better prices in the market. If, during our continuous auditing, we find out that the supplier has not given us the best market price, we can apply a retroactive clause, charging that price di†erence in the next installment of the contract. A penalty value is also established in case the company is ine·cient on delivery or fails to observe the legal conditions stipulated in the contract.

Q: How can ITS accelerate the introduction of new technologies to Mexico?

A: Suppliers need to convince Pemex that it needs their technologies. It is not our responsibility to promote suppliers or technologies, since we are not the experts in this domain; we are the experts in the procurement of those technologies, processes, services, and equipment. On the other hand, ITS strives to ensure that a sound percentage of Mexican content is included in the products and services that Pemex procures. Even though the domestic industry is very competitive, Pemex sometimes needs international technologies to overcome new challenges in areas where the national industry lacks the necessary capabilities, technology and experience. It all comes down to what is best for Pemex, but we are very mindful of local content and the idea of strategic alliances between national and international players.

Q: What opportunities do you see for improving the procurement process under the present legal framework?

A: The procurement process is currently fragmented, since each division has its own procurement activities. This creates several ine·ciencies, since the procurement committees of the four subsidiaries use di†erent procedures and standards, even when they have the same guidelines. The solution to further streamline the process is to centralize procurement activities and standardize the procedure. Once centralized, we will better understand the bigger picture and negotiate more intelligently under the Pemex umbrella. It will be very di†erent to negotiate under that guise, giving companies a certain procurement commitment as opposed to every subdivision buying products separately from the same supplier. The centralized vision would allow us a stronger negotiating stance and better compliance regulations and guidelines, with a decentralized distribution scheme. We are currently looking at this hybrid centralized model with Pemex, since most of the large oil and gas companies have a variation on this type of model.