Background on Pemex and its Financial Status
Petróleos Mexicanos (Pemex), Mexico’s state-owned petroleum company, is the world’s most indebted oil firm. Its financial situation has been a concern for credit rating agencies, leading to repeated government interventions, including financial support and tax relief measures.
Who is Pemex?
Pemex is Mexico’s national petroleum company, responsible for exploration, production, refining, and marketing of oil and natural gas. It is a crucial entity for the Mexican economy, contributing significantly to government revenue and employment.
Why is Pemex relevant?
Pemex’s financial health directly impacts Mexico’s economy, as its struggles can lead to reduced government revenue and increased pressure on public finances. Moreover, its debt burden affects the company’s ability to invest in new projects and maintain existing infrastructure.
Government Support for Pemex
According to the Mexican Secretariat of Finance and Public Credit (SHCP), the federal government transferred $950 million to Pemex during the first half of 2023. This amount is part of a $13.6 billion budget line approved for Pemex this year.
Comparison with Previous Year
Compared to the same period last year, the current administration has allocated 42% less in transfers to Pemex. So far, nearly 70% of this budget line has been used, which is one of the primary funding sources for the $464.25 billion gast approved for Pemex this year.
Understanding the Transfers
Jorge Cano, coordinator of the Mexico Evalúa program on expenditure and accountability, clarified that the approved spending for Pemex does not specify receiving transfers. Instead, these transfers serve as additional income to support Pemex’s operations.
Pemex’s Financial Obligations
As a semi-public company, Pemex can theoretically only spend what it generates through its own means, primarily from oil sales and other activities. Its debt stood at $98.8 billion as of the end of the first half of 2023, equivalent to approximately $1.8 trillion Mexican pesos.
Impact on Government Revenue
Mexico Evalúa reports that the transfers to Pemex result in the government receiving fewer petroleum revenues, affecting public finances. In the first half of 2023, Pemex contributed $128.1 billion to the federal government, but after receiving $95 million in transfers, the state ended up with only $33.1 billion.
New Rescue Plan for Pemex
On the previous Tuesday, SHCP, SENER, and Pemex unveiled a Strategic Plan to rescue the struggling company once again. The plan aims to establish a $2.5 billion investment fund for Pemex projects, enabling the company to become self-sufficient by 2027.
Debt Reduction Targets
The plan intends to reduce Pemex’s debt from its current $105.8 billion (current dollars) to $77.3 billion by the end of 2030. This would represent a 30% decrease compared to 2018 levels.
Support for Upcoming Years
Pemex will require government support during 2025 and 2026 to meet its financial needs. However, with the operational plan and increased revenues, a positive operating balance is expected by 2027, ensuring Pemex can fulfill its commitments. The released funds will be directed towards the most profitable activities, while maintaining accountability and transparency mechanisms.
New Initiatives for Pemex
Pemex plans to reactivate mature fields through mixed contracts with private partners. A total of 21 mixed contracts have been proposed, to be developed by 2035. Additionally, Pemex intends to exploit natural gas from its non-conventional reservoirs using hydraulic fracturing techniques, also known as fracking.
Key Questions and Answers
- What is Pemex? Petróleos Mexicanos (Pemex) is Mexico’s state-owned petroleum company responsible for exploration, production, refining, and marketing of oil and natural gas.
- Why is the Mexican government supporting Pemex? The government aims to ensure Pemex’s financial stability, which is crucial for Mexico’s economy and public finances. The support includes budget transfers, tax relief, and investment funds.
- How much has the government transferred to Pemex in H1 2023? The Mexican government transferred $950 million to Pemex during the first half of 2023.
- What are the debt reduction targets for Pemex? The new plan aims to reduce Pemex’s debt by 30% compared to 2018 levels, bringing it down to $77.3 billion by the end of 2030.
- What new initiatives is Pemex undertaking? Pemex plans to reactivate mature oil fields through mixed contracts with private partners and exploit non-conventional natural gas reservoirs using hydraulic fracturing techniques.
