Understanding the Energy Conservation Law and Pemex’s Situation
The law of conservation of energy states that energy cannot be created or destroyed, only transformed. In the case of Petróleos Mexicanos (Pemex) credit risk, as assessed by Moody’s, it’s not about creating a robust company or destroying its problems but rather transforming them into “risk Mexico.”
Moody’s Evaluation and Pemex’s Strategic Plan
Roxana Muñoz, Pemex analyst at Moody’s, explained to El Economista that the Strategic Plan 2025-2030 is viewed positively due to the coordination between the federal government, through the Secretariats of Finance, Energy, and development banking with Pemex.
Currently, Moody’s has placed Pemex’s credit rating under review for a potential increase. The firm will wait until the third quarter of this year to finalize the rating review once Pemex’s Strategic Plan details, including investment fund specifications for Pemex, are published. These details are crucial to evaluate Pemex’s attractiveness in the markets.
Moody’s has warned that Pemex’s financial situation is so fragile that it could directly impact Mexico’s sovereign debt rating.
Other Rating Agencies’ Perspectives
Fitch Ratings, another prominent rating agency, suggests that Mexico could have a higher rating if not for the contingent liability associated with Pemex.
Standard and Poor’s, on the other hand, sees Pemex’s risk as Mexico’s risk, believing there is a “near certainty” that the Mexican government would provide extraordinary support to Pemex in case of financial difficulties.
Implications for Mexico’s Public Finances
While Pemex receives financial reinforcement to improve its debt outlook, this also highlights the financial risks for public finances, drawing attention to the sovereign rating.
Currently, Pemex benefits from public support to enhance its debt outlook, but this also intensifies scrutiny on the sovereign rating since structural change remains absent.
Supporting Pemex financially should be viewed as a failure under any perspective. There’s nothing to celebrate about a company defined to be profitable needing public resources to the point of jeopardizing the integrity of the state’s finances.
The critical task now is to attempt a profound, structural reform of Pemex, similar to the efforts made during the Peña Nieto administration. This would involve salvaging what can be from Pemex’s core business, adjusting its size with private participation, to ensure financial viability someday.
What’s needed is more of a political decision than a financial one to correct the course lost by both Pemex and Mexico’s energy business.
Key Questions and Answers
- What is the current situation with Pemex’s credit risk? Moody’s has placed Pemex’s credit rating under review for a potential increase, pending the publication of details from its Strategic Plan 2025-2030.
- How do other rating agencies view Pemex’s impact on Mexico’s sovereign debt? Fitch Ratings suggests Mexico could have a higher rating without Pemex’s contingent liability. Standard and Poor’s sees Pemex’s risk as Mexico’s risk, anticipating government support in case of financial difficulties.
- What are the implications for Mexico’s public finances? While Pemex receives financial reinforcement, it also highlights the financial risks for public finances, intensifying scrutiny on Mexico’s sovereign rating due to the absence of structural change.
- What is the recommended course of action? A profound, structural reform of Pemex is necessary, similar to the efforts made during the Peña Nieto administration. This would involve adjusting Pemex’s size with private participation to ensure financial viability.
