Mexican gov’t unveils $5.5 bn package to support ailing Pemex

Mexico’s government on Friday unveiled a 107-billion-peso ($5.5-billion) aid package in 2019 for state oil company Petroleos Mexicanos (Pemex), which is struggling with sky-high debt and has seen its output plummet over the past 15 years.

“We’ll be presenting what will be the first injection of funds to support Pemex,” President Andres Manuel Lopez Obrador said at his morning press conference. “If more is needed, we’ll allocate more funds.”

Speaking at the same press conference, Pemex Chief Financial Officer Alberto Velazquez said that the first action would be a 25-billion-peso injection of funds from this year’s federal budget.

The second measure is an advance 35-billion-peso transfer payment from the Finance Secretariat to Pemex to assist the company in covering its pension liabilities.

“Next, and this is the most relevant announcement for us, the federal government will increase Pemex’s tax relief through a greater allowance for deductions. For us, this tax relief will represent a reduction in our fiscal burden of at least 15 billion pesos” in 2019, Velazquez said.

The amount of tax relief will reach 30 billion pesos at the end of 2020 and continue to accumulate over the course of Lopez Obrador’s six-year term, he added.

For 2019, the injection of funds will amount to 75 billion pesos, the CFO said.

Additionally, a crackdown on fuel theft by Lopez Obrador’s leftist administration will enable Pemex to recover some 32 billion pesos in revenues that would otherwise have been lost, Velazquez said.

“To summarize, this set of supporting actions and measures will provide us additional funds totaling 107 billion pesos this year,” he said.

Lopez Obrador said at the press conference that the measures reflect his government’s commitment to “strengthening Pemex as a strategic company.”

The company, which holds around $106 billion in financial debt, is in a precarious situation due to, among other reasons, a steep drop in production to an average of just 1.71 million barrels per day in December (down from 3.38 million bpd in 2004).

It also suffers from aging infrastructure, while budget cuts by the previous government slashed funds needed for oil exploration.

Pemex’s difficult financial situation led Fitch Ratings to lower its debt by two notches from BBB+ to BBB- (with a negative outlook), meaning the company is now just one step above junk status.

“I’m convinced Pemex’s main problem, which led Pemex to this extreme weakness, was corruption. If we do away with corruption, Pemex will be reborn, and this applies to the country” as a whole, Lopez Obrador said.