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UPDATE 2-Mexico's Pemex graft sting threatens to engulf former government

Dave Graham

(Adds background, reaction from some politicians, Odebrecht response)

MEXICO CITY, May 29 (Reuters) - The impact of a first major anti-corruption drive by Mexican President Andres Manuel Lopez Obrador spread deep into the political class on Wednesday as the probe threatened to involve top officials in the last government, including the president.

At the center of the investigation is Emilio Lozoya, a former chief executive of state oil company Petroleos Mexicanos (Pemex), who the government has accused of financial irregularities during his time in charge between 2012 and 2016.

Mexico's attorney general said a warrant for Lozoya's arrest was issued after allegations surfaced about his role in Pemex's purchase of struggling fertilizer businesses, as well as his dealings with scandal-plagued Brazilian construction firm Odebrecht.

Lozoya has yet to speak publicly on the accusations, but his lawyer said on Wednesday that top officials from the previous administration, including former President Enrique Pena Nieto, should testify on what they knew about Pemex's operations.

Noting that the ministries of finance, economy and energy all sit on the company's board, Lozoya's attorney Javier Coello said the government had to sign off on whatever Pemex did.

"I would even summon President Pena Nieto," Coello told broadcaster Televisa. "Nothing in this country moved unless there were instructions from the president."

Mexican Attorney General Alejandro Gertz has not detailed the case against Lozoya but said it had been in preparation for months. He too said the role played under Pena Nieto by the ministries on Pemex's board needed to be examined.

The biggest result of the probe so far was the arrest on Tuesday in Mallorca, Spain, of Alonso Ancira, chairman of steelmaker Altos Hornos de Mexico (AHMSA), who the government accuses of paying Lozoya bribes.

In a reminder of the close ties between business and politics, that news was not welcomed by everyone in Lopez Obrador's ruling National Regeneration Movement (MORENA), which is now home to many politicians who were once in other parties.

MORENA Senator Armando Guadiana said in a video on Twitter on Tuesday it was a "real shame" what had happened to AHMSA, criticizing a decision - later reversed - to freeze its bank accounts, and urging investigators to respect Ancira's rights.

Arrest warrants for other suspects have also been issued and Coello said Lozoya's Mexico City home had been raided.

ENORMOUS PRESSURE

Lopez Obrador, a veteran leftist, took office in December pledging to crack down on public sector corruption in Mexico, which he says is a legacy of his political adversaries.

He told his regular morning news conference the probe was not a "political persecution" and that the charges stemmed from investigations already underway under his predecessor.

Lozoya helped run Pena Nieto's 2012 election campaign and was a major figure in the last administration until his abrupt departure from the struggling Pemex in February 2016.

The 44-year-old has always denied wrongdoing and defended the fertilizer business acquisitions as a wise investment.

In 2017, he had to deny having funneled cash to Pena Nieto's election campaign after Brazilian newspaper O Globo alleged that Lozoya had taken $10 million in bribes in 2012 from a former Odebrecht executive.

The reports weighed on the crumbling reputation of the then-ruling Institutional Revolutionary Party (PRI), helping to pave the way for Lopez Obrador's July election victory.

Heriberto Galindo, a former PRI lawmaker, said the last government would have benefited if it had cleared up the matter, and gave his support to a thorough investigation.

"If Lozoya is only the tip of the iceberg, this should be pursued to the end, regardless of who it affects," he said.

The finance ministry's anti-money laundering czar has said the allegations center on bribes paid in connection with the $475 million purchase by Pemex of a fertilizer plant from AHMSA.

The official, Santiago Nieto, said the case had links to Odebrecht, whose executives have testified about bribes to politicians across Latin America.

In a statement, Odebrecht said it had formally told Mexico's attorney general in April that it wanted to cooperate with investigations.

Odebrecht reiterates its commitment to ethical and transparent conduct in Mexico and reaffirms its total willingness to collaborate in an effective way with the countrys authorities," the company said.

Last week the government banned Lozoya from public service for 10 years as part of a probe into the 2014 purchase of the fertilizer plant, which was out of service.

The decision to go after him comes just days ahead of state elections on Sunday that will provide the first major test of Lopez Obrador's popularity since he took office.

Speculation has swirled for months about whether Lopez Obrador would go after high profile targets to underline his commitment to end corruption, a chronic malaise blamed for hurting growth and stoking violence and inequality in Mexico.

Jesus Ortega, a former campaign manager for Lopez Obrador and senior figure in the center-left opposition Party of Democratic Revolution, said the Pemex move appeared motivated by the president's need to satisfy his base.

"The pressure within his own party and the pressure within his cabinet had become enormous," Ortega said. (Reporting by Dave Graham; Additional reporting by Diego Oré, David Alire and Gram Slattery; Editing by Frank Jack Daniel and Tom Brown)