The Power and the Money

What is going on in Tamaulipas?

I may have a hypothesis. But that is for later.

For now, consider this private report from June. Roughly 400 businesses in the three rural counties (Güémez, Padilla, and Hidalgo) right north of Ciudad Victoria, the state capital, went on strike for 72 hours to protest rising extortion. The area mostly grows citrus fruits, but nowadays that isn’t too humble. Three separate organizations: the Gulf Cartel, the Northeast Cartel, and the Zetas are trying to muscle into the business. 

Actually, that would be the “Old School” Zetas, the Northeast Cartel being the new school Zetas. They split from the organization after the federal government took out Omar Treviño. It might be sort of ironic, given that the Zetas arose from a split with the Gulf Cartel. 

Extortion and kidnapping (which is what happens if you do not pay the extortion) has caused the value of production in those counties to collapse by 60% ... at least according to scattered reports from producers. Reputable statistics are hard to come by. Abraham González, Tamaulipas state director of the National Federation of Commerce Chambers (Fecanaco) on 21 June said that organised criminal groups were aware of the harvesting season and were attempting to extort businesses all along the agricultural value chain. He also said that they have warned producers to halt the collection and transport of agricultural goods “to reduce their exposure to incidental gunfire.” Which you sort have to love, as a phrasing.

Governor Francisco García (PAN) seems helpless in front of the chaos. The closest he has come to a plan has been to announce that the police will be stepping up highway patrols and surveillance in the three affected counties. Which may come in handy, considering as the main road from Monterrey passes right through Hidalgo and Güémez. But which is also a little sobering, considering as I have got to drive said road in January. I know, I drove through worse areas in 2010. And I was working for Uncle Sam in Afghanistan in 2006-07. But there were some differences:

1. Being in a dangerous area both times was the point of the exercise. I was there because it was dangerous. I had a job to do that maybe just-possibly if-lucky could have resulted in both areas becoming less dangerous;
2. Despite (1) being entirely valid, I also had an excess of machismo back in 2010 that has  recently burned off, perhaps because;
3. I have kids now.

Since I am not going there because I want to study or combat the violence,  the idea of travelling into a violent zone on business is somewhat less attractive than it was seven years ago. And travelling there on business seems to carry a modicum of risk these days. Consider the following bottom-line recommendation to foreign businesses desirous of operating in the state: 

Chronic insecurity is likely to continue posing challenges to the operations of foreign companies in Tamaulipas. Enhanced threats of extortion, kidnapping, vehicle and cargo theft, robbery and incidental exposure to gunfire will persist. Additionally, roadblocks erected by organised criminal groups or security forces can occur on occasion, affecting logistical operations. However, this does not represent an insurmountable obstacle to doing business in the state, providing the requisite security measures have been put in place.

Well, if you are a scholar wanting to drive down from Monterrey to work in some archives, what exactly would be the requisite security measures? 

A new research fail, previewed!

 I have not had too much luck over the past few years with big new research projects aimed at Mexico. In part, that has been because I ratcheted back slightly over the past two years, after finishing The Empire Trap, for psychological reasons. Also in part, it has been because I have been taking on a bit more paid work than I used to. Thus, the posts on Albanian electricity, Colombian coal, Ecuadorean foreign relations and Puerto Rican finance that you have not seen. I assure you, they were brilliant. But mostly it has been because I either been unable to find the data I needed or failed to get it released. Or in one case, have not been able to figure out how to operationalize the hypothesis.

So here is my next research fail, previewed for you before I even begin! There is a long-standing argument in political science that the best way to combat corruption is raise civil service salaries. Two papers make the case more generally. In Brazil, Claudio Ferraz (PUC-Rio) and Frederico Finan (Berkeley) found that higher wages for legislators attracts better-educated people into politics and increases political competition. A follow-up paper by Finan along with Ernesto Dal Bó (Berkeley) and Martín Rossi (San Andrés) found that higher wages in Mexico attracted better candidates, although the effect on outcomes was not really measured.

It turns out, however, that corruption also varies a lot across Mexico. 

More interestingly, and to my surprise, so do police salaries! And not by a little bit. A lot. In 2011, Querétaro paid cops 18,173 pesos per month ... That was around US$19,000 per year (at 13 months pay). Not riches by American standards ... but rather higher than the US$7,930 per year average. On the other hand, the state police in Tamaulipas earned just 3,618 pesos per month, a miserly US$3,784.

But just to mess you up, Nuevo Laredo, a city in Tamaulipas, had the highest salary for its municipal police in 2010: roughly US$14,100 per year.

The problem, of course, is that the federal government only conducted the survey once, to check and see if local police forces were complying with new laws aimed at professionalizing the police. So there is no time series. That I know of.

But if there is, and a follow-up, then you have an experiment ...

Wish me luck. Sigh. I have not had luck with this lately.

What is wrong with Tamaulipas?

 Tamaulipas is right up at Mexico’s northeastern border with the United States. The state is, to put it mildly, a mess. It may be in fact the only part of the country where I am afraid to go, and I just got back from rural Guerrero. Buses get stopped and the passengers kidnapped. Gun battles envelop entire towns, others are emptied of their populations. Tampico’s population is holding up, but fleeing businesses have given much of the city a postapocalyptic Detroit-like feel. (Caveat: that particular Guardian article is not to be trusted. Click the link only for the pictures. For facts, go to this Universal infographic.) So what is going on?

Here are some hypotheses, two from me, the rest from the indispensable Alejandro Hope.

1. Nothing. Look at the figures for homicide per 100,000, taken from the reports filed by state prosecutors. Tamaulipas (the green line) suffers a big spike around 2010-12, but falls back to something close to the national average afterwards. And while a homicide rate of 18.1 per 100,000 is not low, it is not a whole lot higher than Texas in 1979-83, when it went above 16 for four straight years ... let alone Georgia, which hit 18.5 in 1972, or Louisiana, which peaked at 20.3 in 1993. In this view, Tamaulipas is just another place with a crime problem and some bad press.
2. Bad luck. Sure, maybe the gross homicide numbers for the state are not that high, but anyone who has been there will tell you that it feels out of control in a way that even Louisiana did not in 1993. Tamaulipas, however, happens to the be home base of the Zetas, who have chosen a particularly violent revenue model. That is, the Zetas do not necessarily attempt to run all crime in their territory directly. Rather, they collect taxes on anyone who wants to the right to engage in criminal activity in their territory. That means terrifying people into paying and killing those who don’t. Moreover, it gives the Zetas every incentive to use their comparative advantage in violence to branch out into extorting other parts of society, from small businesses to Pemex. If the state had happened to be the home base of, say, the Sinaloa Federation, then it would be far more civilized. 
3. Bad geography. (This is a take on Alejandro Hope’s suggestions numbers 1, 2 and 3.) Tamaulipas sits on a prime transport route to the eastern United States. Smuggling has been a big part of the state economy since forever. Moreover, inasmuch as there has been a licit economy in the state, it has been based on factories exporting to the U.S. or oil. Manufacturing is concentrated on the border and oil is the purview of the national government. Upshot? A long history of corrupt government, abetted by an economic elite that could not care less what happens outside their factory gates or the short run between those gates and the border. Plus real reasons for cartels to fight over the place.
4. Bad incentives. The Feds have been running the law enforcement show since 2007, sapping any incentive state leaders might have to develop a competent police force.

I suspect that the big problem is (2), with a lot of (3). The implication is that with the Zetas in disarray (but still along with the Gulf cartel very much a force, regardless of the nonsense coming out of the Peña administration) then a concerted effort could bring down the remaining violence, much as has been done in next door Nuevo León (see graph). But for that to happen either Hope has to be wrong about the effect of federal intervention or we both need to be wrong about the trustworthiness of the Peña administration.

Good luck with that. 

When the facts change ... and what Assad could learn from the Zetas

It seems as though the United States has some evidence that the chemical attack in Syria was not ordered at the highest levels of the government. Rather, U.S. intelligence intercepted the following last Wednesday, August 21: “In the hours after a horrific chemical attack east of Damascus, an official at the Syrian Ministry of Defense exchanged panicked phone calls with a leader of a chemical weapons unit, demanding answers for a nerve agent strike that killed more than 1,000 people.”

Now, it would be a screw-up of unprecedented proportions for a regime to use chemical weapons by order of a low-ranking Army officer. One might imagine how it could happen in the midst of an invasion from another state, during which all sorts of authority would be pushed down the chain of command. Letting it happen during a civil war when your side is gaining the initiative and against civilians is criminal stupidity.

If correct, however, it changes my calculus regarding a punitive strike ... but only a little. Criminal stupidity deserves punishment to make sure that it does not happen again. I think. (Counterarguments welcome!)

But if lower-downs were responsible, it opens a way for the Syrian government to avoid a strike. Consider that when the Zetas accidently ambushed USDA vehicles in Tamaulipas, they released the Americans and apologized. When the Zetas idiotically shot and killed an ICE agent in San Luis Potosí, the Zetas practically handed the man responsible over to American authorities. That is, in fact, Zetas SOP for anything that might bring down the heat from either the United States or the Mexican industrial elite. (See page 5.) If your people do something stupid that could cause trouble for the organization, kill them or turn them in.

If it is true that low-level Syrian officers ordered the use of sarin without higher approval, then Assad could take a page from the Zetas’ book and turn those officers over to the International Criminal Court. It would be strongly in his interest both in terms of winning propaganda points and heading off intervention. Moreover, the ICC might refuse to take them, in which case it is win-win-win for Mr. Assad.

He won’t do the above, of course, because that would mean conceding that the Syrian state has no right to use chemical weapons despite having refused to sign any of the international conventions on the subject. He should, the weapons serve no real purpose, but he won’t.

Miguel Angel Treviño may have been a better student of the dictator’s handbook than Bashir Assad. Which is somewhat sad.

The market for stolen oil

 “In a reversal of the classic Western movie, Mexican criminals have sought refuge with their ill-gotten gains by crossing the Rio Grande to the North, where the Mexican government has no authority to follow.”

—Pemex, in a suit before the U.S. District Court for the Southern District of Texas

So, stolen oil from Pemex makes its way to the United States. How, you ask? It’s a reasonable question. Oil has a high value-to-weight ratio, but cocaine it isn’t. You can’t smuggle economically-viable quantities in jerrycans. Plus, if you’re moving crude oil or natural gas condensate, you can’t then flog it on a streetcorner. You need to sell it to a refinery.

The answer: give the refineries plausible deniability. Fake paperwork to get it over the border, then sell it to a reputable middleman. How did this work?

On May 29, 2011, we got the answer, when Pemex filed a federal lawsuit in the southern district of Texas against a group of American refineries for knowingly buying stolen natural gas condensate.

Here’s the value chain. The condensate is produced in Mexico’s Burgos gas field, located near the U.S. border across the northern stretch of Tamaulipas, Nuevo León, and a little bit of Coahuila. Pemex produces gas from 2,827 wells in the field. It then pumps the gas to 150 collection stations. Pipelines then transport the gas and condensate (the liquid byproduct from gas production, which can be used in oil refineries) from these 150 collection stations to 52 transfer and delivery systems, which are basically small pipeline networks. After collection at the transfer systems, Pemex transports the condensate by pipeline or tanker truck to a storage facility near Reynosa, Tamaulipas. From there, the condensate goes by pipeline to the Burgos gas processing center or tanker truck to a refinery in Cadereyta, Nuevo León.

The Zetas intercept the oil in one of three ways. The major one is to simply tap into the transfer and delivery systems. (To do this, the Zetas needed to build their own pipelines, a pretty impressive accomplishment.) The secondary one is to hold-up the tanker trucks on their way to Reynosa. The final one is to kidnap Pemex officials and force them to divert condensate.

Now, the Zetas can easily fence refined products inside Mexico, but they can’t sell condensate: Pemex operates the only refineries! So they have to move it to the U.S. According to the lawsuit, the stolen condensate was moved by tanker truck (think about that for a moment) to the border. Before crossing, however, the Zetas transferred the stuff to newer trucks that meet U.S. regulations. The drivers then presented forged export documents, sometimes mischaracterizing the condensate as naphtha. They would then sell the stuff to the U.S. defendants.

Big Star and F&M Transportation bought the oil from Ygriega Energy Corporation of Edinburg, Texas, whose owner, Arnaldo Maldonado, has already pled guilty to felony conspiracy to receive and sell stolen goods. F&M transported the condensate, in addition to buying it. Superior Crude also transported stolen condensate, and brokered sales of the stuff. (Pemex fingered Superior because a man named Donald Schroeder coordinated the shipments ... who has also pleaded guilty to felony conspiracy to receive and sell stolen property, specifically Mexican condensate, in his role as president of a company called Trammo Petroleum.) Finally, TransMontaigne operated the storage facilities in Brownsville which the stolen condensate passed through on its way to the final buyers. Finally, Western Refining bought condensate from companies like Continental Fuels, whose president confessed to trafficking in stolen goods.

In other words, according to Pemex, Big Star, Superior Crude and F&M “actively and knowingly participated in a conspiracy to import and market the stolen condensate in the United States.” TransMontaigne, meanwhile, stands accused of negligent participation, since Pemex claims that they should have realized that the goods passing through their hands were illegitimate. Western Refining is accused of no wrongdoing, but Pemex says that it is liable for all its transactions involving Mexican condensate. Recently the company has moved to add subsidiaries of ConocoPhillips and Shell to the lawsuit.

Now here’s the good news: on the U.S. side of the border, several people are going to jail and the rest of the companies involved in buying the stuff are facing a serious civil suit. In short, it is likely that the United States legal system will soon enough shut down the export of stolen Mexican crude and condensate.

But there’s also bad news: there is money to made in stealing refined products and selling them inside Mexico. Lots of money. In fact, as Patrick Corcoran has pointed out, the fact that pipeline-siphoning is shifting to Sinaloa (where the lines carry refined products) is a sign that other groups besides the Zetas are getting into the act. (In this case, likely El Chapo’s people.) The U.S. government can and will help. But it can’t change the fact that Mexico is now a lucrative market for its own petroleum production. Keeping organized crime from taking more of that market is something that Mexico will have to solve on its own.

David Shields got the solution to the problem of internal oil theft right when he wrote:

“It’s very easy to solve this. Total control over the tanker trucks. Total control over every liter of gasoline from the refinery to the gasoline station. That’s the way it was 15 years ago. You move the army in and take control over all the distributors by making sure they have a contract for every single movement of gasoline around the country.”

Where I would disagree with Mr. Shields is that the solution he proposes is far from easy.