MEXICO CITY: The KU-S oil production platform off the coast of Ciudad del Carmen, with its 10,000-ton tangle of yellow and red tanks and pipes, would seem the natural product of three years of record output and soaring energy prices. The newly installed platform certainly is the face that Mexicos state oil monopoly, Pemex, would like to show off.

But Pemex is in trouble. Its production and proven reserves are falling, and it has no money to reverse the slide. Mexico is the second-largest supplier of imported oil to the United States, after Canada, but its total exports are slipping. If the company continues on its current course, Mexico may one day have trouble just keeping up with rising demand at home.

The evidence of its predicament is clear not far from the KU-S platform. On the horizon, some 50 to 60 miles, or 80 to 97 kilometers, into the southern Gulf of Mexico, aging rigs billow flames and black smoke over the waters as they burn off the natural gas they are unable to process.

The major reason that Pemexs prospects are so poor, energy experts agree, is government interference. The Mexican government, which expropriated the oil industry in 1938, depends on Pemex to finance its budget. Last year, sales at Pemex (its full name is Petrуleos Mexicanos) reached $97 billion. But $79 billion of that went to the government, Pemexs chief, Jesъs Reyes Heroles, said last month. That accounted for almost 40 percent of the federal budget.

Pemex has been hamstrung by years of short-sighted management aimed at extracting the most cash for the government treasury Д Mexicos president and Congress must approve the companys budget, its output, investments and exports each year. By law, Pemex is closed to any outside investment, shutting it off from private capital and expertise.

In addition, Pemex has not reinvested enough for decades and, because it faces no competition at home, has lagged behind many of the industrys technical advances. Its labor union has locked it into rigid work rules and siphoned off hundreds of millions of dollars for unexplained benefits. And that does not even touch on the widespread corruption and waste.

“Inside Pemex, I think they have creative solutions,” said Amy Myers Jaffe, an energy analyst at the James A. Baker 3rd Institute at Rice University. “They know what they want to do. How do you get that solved within the politics of Mexico?”

President George W. Bush is scheduled to visit Mexico on Monday and Tuesday, and oil is likely to be on the agenda. In comments to Latin American reporters this past week, Bush mused that Mexicos president, Felipe Calderуn, should consider private capital to expand Pemex production. The comments ruffled Mexican sensitivities over national sovereignty of its oil resources.

Over the past five years, Pemex has spent about $50 billion, mostly borrowed, to pump more oil and gas. “It should have spent much more on exploration so that it wouldnt be in the situation it is in today,” said Adrian Lajous, who led Pemex in the 1990s. “It was a drive to generate short-term revenue for the government.”

For all that spending, said George Baker, a Houston analyst who publishes a newsletter covering the Mexican oil industry, Pemex did not get much. “In the end, the results were very weak. You didnt build a new refinery. You didnt find more oil.”

Mexico is sitting on tens of billions of barrels of untapped oil reserves. But much of that is in the deep waters of the gulf, not far from where U.S. companies have announced discoveries. Pemex has neither the money nor the expertise to get at the oil.

Its biggest field, Cantarell, in the shallow waters of the gulf, is one of the worlds richest. That field used to account for about 60 percent of Mexicos oil production, but has gone into a sharp decline.

Production at Cantarell fell 13.5 percent last year, and it will fall an additional 15 percent this year, Reyes Heroles said recently. The decline at Cantarell pushed down Pemexs output to 3.26 million barrels a day last year from its peak of 3.4 million barrels in 2004 At the same time, Pemexs proven reserves of crude oil have fallen to 11.8 billion barrels at the end of 2005 from 15.1 billion barrels at the end of 2002.

Mexicos nationalist energy policy has closed off the option that most cash- starved national oil companies have used Д opening up some production to joint ventures with foreign companies.

ISRAEL’S prime minister issued a warning to Hamas yesterday that it would escalate its military activity unless the Palestinian militant group stopped firing rockets into the country from Gaza.

Ehud Olmert issued the threat hours after an Israeli air-strike killed three people its army claimed were Hamas fighters travelling in a car in Gaza City.

“If the diplomatic and political steps we have taken do not bring about calm, we will be forced to intensify our response,” Mr Olmert said.

Hours after the warning, a Qasam rocket struck the centre of the Israeli border town of Sderot, but it caused no injuries.

The Israeli army said ten rockets had been fired from Gaza yesterday and that four of them had landed in southern Israel.

Meanwhile, the latest ceasefire between Hamas and the rival Fatah movement appeared to be holding, prompting residents to venture out of their homes to stock up on supplies. Children were able to go back to school.

However, there was little optimism that the truce, which followed internecine fighting that killed at least 49 people, could bring more than a temporary respite.

The two sides continued to engage in a war of words.

Yasser Abed Rabbo, an adviser to Mahmoud Abbas, the Palestinian president and leader of Fatah, accused Hamas of sending rockets into Israel not in order to resist occupation, as Hamas says, but to camouflage their “coup” against Mr Abbas’s authority and the Fatah-aligned security forces in Gaza.

“They want to use this so-called resistance against Israel as a cover for what they are practising inside the Gaza Strip,” Mr Abed Rabbo said.

“They want to unite the population around them as much as they can and show they are victims of both Israel and Fatah.”

Sami Abu Zuhri, a Hamas spokesman responded angrily, branding Mr Abed-Rabbo “an American-Zionist mouthpiece who is one of the leading causes of civil strife”.

He went on: “He expresses only the policy of the occupation and its goals.”

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ELDERLY people suffering from dementia could be tagged and have their movements monitored by satellite to give them and their carers more freedom, it has emerged.

Malcolm Wicks, the science minister, suggested the technology used to track criminals could also help families to keep tabs on frail or elderly relatives.

His proposals drew a mixed response from campaigners and politicians, who were divided between support on the grounds that it would give both families and the elderly more freedom and fears that it was an extension of the creeping surveillance of society. There were also concerns that the government was trying to address the pressures of an ageing population and the rising costs of dementia - which cost the state 17 billion a year - by using “inhumane” electronic tags.

But campaigners warned that the proposal could raise ethical questions, such as how a person with advanced dementia or Alzheimer’s could be capable of giving informed consent to be tagged.

Mr Wicks told MPs that the idea of using satellite monitoring to benefit society should be discussed.

“We’ve got an ageing population with many people frail and many suffering from dementia, including Alzheimer’s. How can we get the balance right so that these people have the freedom to live their lives, to go out in the community and go shopping?”

A spokesman for the Alzheimer’s Society said electronic tagging could ease concern for carers, but warned: “Technology, which is often used to ’secure’ animals, retail products and prisoners, should not automatically be transferred to people with dementia without full consideration of the ethical issues.”

Joe Harris, the general secretary of the National Pensioners’ Convention, said it was “shocking” to replace dignified care with an “inhumane” electronic tag.

Kate Jopling, of Help the Aged, said that at first glance the proposal smacked of “big brother”. But she said the potential of new technology to help vulnerable older people live more independent lives should not be dismissed.

However, Shami Chakrabarti, a director of Liberty, warned of “gimmicks” designed to replace expensive care.

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