The incoming federal government’s proposal to stop exporting oil poses a threat to the finances of state oil company Pemex and Mexico’s credit rating, the financial services company Moody’s has warned.

Senior analyst Nymia Almeida said Pemex would be more exposed to volatility in the exchange rate because its income would be limited to the sale of gasoline in pesos whereas 87% of its debt — US $104 billion as of last June — is in dollars and other hard currencies.

“This new plan could also force Pemex to import crude, a situation that would add even more to the exchange-rate and cash-flow risks,” she added.

Importing crude, in turn, would weaken the oil company’s credit rating with the extent of the damage dependent on the quantity of oil it needs to import, Almeida said.

In addition, the risk of Pemex’s cash flows declining over the next three years is high due to the incoming government’s intention to not raise fuel prices.

Almeida said that while the federal government has reduced its reliance on petroleum income since the implementation of its 2013 tax reform, a loss of income from oil exports could add considerably to Mexico’s deficit.

Stopping oil shipments would cost the new government income worth almost 2% of gross domestic product (GDP).

President-elect López Obrador said in Tabasco last weekend that Mexico would stop exporting oil in the medium term in favor of meeting domestic demand.

“We’re not going to sell crude oil abroad in the medium term, we want to process all our raw material,” he said.

“We’re going to extract only what is needed for our internal consumption.”

López Obrador, who will take office on December 1, has pledged to “rescue” the energy sector by building a new refinery in Tabasco, revamping the six existing ones and upgrading power stations operated by the state-owned Federal Electricity Commission (CFE).

Mexico’s oil production has been in decline for over a decade but newly-discovered reserves with up to 180 million barrels of crude oil are expected to help boost production.

López Obrador has pledged to increase crude oil production to 2.6 million barrels per day (bpd) by the end of his six-year term, up from 1.82 million bpd in August.

Last month, the president-elect assured private energy executives that their oil contracts will not be canceled if they meet existing terms and a new round of oil auctions scheduled for February looks set to go ahead.

Source: El Financiero (sp)