The PACMA is a group of corporate social responsibility (CSR) and environmental care projects, works and actions, to promote sustainable development, as well as strengthen relations between communities and oil and gas (O&G) companies in order to obtain and extend the Social License to Operate (Licencia Social de Operación “LSO”). The LSO refers to the acceptance of oil and gas companies and their CSR-related projects supporting local communities. Obtaining an LSO is essential for companies to avoid social conflicts and improve their reputation.
Implications for PEMEX contractors
The PACMA guiding document states that the program’s provisions shall be obligatory for PEMEX suppliers or contractors, whose contracts meet, among others, the following requirements: (A) Contracts implemented onshore, provided that:
(i) The amount is equal to or higher than 100 million Mexican Pesos (USD 6.55 Million) and,
(ii) The contractual term is one year or more.
(B) Contracts implemented offshore provided that:
(i) The amount is equal to higher than 300 million Mexican Pesos (USD 19.66 Million)
(ii) The contractual term is one year or more.
(C) For leases or acquisition of platforms and “jack-ups”, companies are required to contribute 1 percent of the amount of the contract.
Conclusion
The contribution to PACMA projects represents a new obligation for every PEMEX contractor that complies with the stated requirements. PEMEX is legally entitled to ask its contractors to comply with the provisions established in the guiding document, and early evidence suggests that PEMEX intends to rigorously enforce the requirement. In addition to imposing potential new costs to operating in Mexico, the new contribution requirement enhances compliance risk for companies operating in the Oil & Gas industry in Mexico by creating a new tier of obligatory third party contributions. Companies subject to the PACMA contribution requirement should take steps to ensure appropriate controls are in place to mitigate compliance risk associated with the program, by, for example:
- ensuring transparency in contribution commitments in a written contract or agreement;
- ensuring contribution recipients are transparent and appropriate due diligence is conducted to ensure contributions go to bona fide projects or recipients;
- ensuring any contributions not personally benefiting any officials, including Pemex employees;
- ensuring any contributions not made in exchange for any business benefit or advantage; and
- ensuring any commitments are in line with PACMA requirements to avoid later allegations that contributions were excessive and intended to obtain a business advantage.
Implementing well-tailored controls and procedures can allow companies to formulate charitable giving programs that minimize compliance risk while maximizing the goodwill that accompanies good corporate citizenship and an improved relationship with PEMEX.
