Drowning PEMEX?

Due to the energy reform in Mexico, PEMEX lost exclusivity in the supply chain on virtually all hydrocarbon activities; now, PEMEX has to compete. Insofar as the reform states, PEMEX will continue operating as the national oil company, and it is expected to do so in the same conditions as other competing companies. That seems fine, until reality reveals its fiscal situation.

For example, the reform made the mistake of not taking PEMEX (and CFE) out of the federal budget expenditure (Presupuesto de Egresos de la Federación, PEF); the company is subject to multiple restrictions on expenditures, debt and control, derived from its status as a productive-state enterprise in the PEF. In addition, the transitional tax regime (2014-2015) does not remove the possibility that Pemex remains subject to an over-extraction of resources by the Ministry of Finances (SHCP), as has been the case for the last 30 years. The 2015 fiscal regime establishes that the treasury shall receive at least the equivalent of 4.7percent of gross domestic product estimate from the "hydrocarbons" sector (percentage that was estimated in 2013), which translates to 861 billion pesos this year. The point is that for 2015, and perhaps for several subsequent years, only one company will be able to produce hydrocarbons and provide resources to achieve this goal: PEMEX. By law, in 2014, PEMEX should have paid to the treasury 785 billion pesos for oil rights (4.5 percent of GDP). In 2014, Pemex contributed 780 billion pesos to the federal treasury, which is 99 percent in comparison to the budget. 

It is known that, due to its financial stringency, in 2014, PEMEX delayed multiple payments to its suppliers and contractors, which affected its rating as a source of reliable payment. In addition, due to the lack of resources, PEMEX was forced to postpone essential projects needed for exploration and production. Just when the company should be strategically positioning itself to compete with its new competitors, PEMEX does not have the authority to use the resources it has to do so.   

Surprisingly, in December of last year, the SCHP withdrew 50 billion pesos that could have been used to reduce its debts with suppliers and contractors, as well as to fund strategic projects. Many of these suppliers and contractors are financed in the national capital and international markets, even with emission of bonds and obligations in the market. For this reason, financial agencies are concerned that if PEMEX does not properly compensate these companies, they in turn will not comply with their financial obligations.

The cost of this withdrawal was high; one might think that it was due to a critical situation on its federal budgetary balance (public deficit), which in turn deserves a public explanation.  In fact, in January, PEMEX further fell into debt with foreign creditors by 6 billion pesos, perhaps to pay for that surprising withdrawal. 

It is unreasonable that last week SHCP announced that by the end of the 2014 fiscal year, the public sector deficit (the one that includes the Federal Public Administration) had increased to 547 billion pesos which is 73 billion pesos lower than what was expected. Why is PEMEX taking 50 billion pesos that could have been put to use to secure reserves and production in the future? In addition, there is a need to assess the disproportionate adjustments made to the budget of PEMEX in 2015. From the total adjustment of the Federal Public Administration (124 billion pesos), it has been asked of PEMEX to implement a reduction of 62 billion pesos. To say it differently in a Mexican expression: when it rains, it pours (llueve sobre mojado). In other words, with this adjustment there will be fewer resources for suppliers, contractors and strategic projects. What is that about?