News
jonathan heath Heath: the oil company is a big 'headache' for Mexico's public finances.

Pemex could become ‘incurable cancer,’ warns Bank of México deputy governor

Company needs structural solution to its financial problems: Jonathan Heath

Pemex could become an “incurable cancer” if the government doesn’t come up with a structural solution to the state oil company’s financial problems, according to the deputy governor of Mexico’s central bank.

Speaking at a seminar organized by the rating agency Moody’s, Jonathan Health said that Pemex is Mexico’s biggest public finances “headache.”

The state owned firm is the world’s most indebted oil company, owing in excess of US $100 billion.

Heath, who stressed that he was speaking as a private citizen rather than the deputy governor of the Bank of México, said that it’s not too late to rectify Pemex’s problems but asserted that the government needs to find a “structural and permanent” solution.

If a solution isn’t found,“this enormous headache will soon become a migraine and then an incurable cancer,” he said.

pemex

During the same seminar, Moody’s analyst Arianne Ortiz Bollin said the government should provide support of at least 1% of GDP to Pemex annually so that the firm can meet its financial obligations, although she personally recommended support equal to 2% of GDP in 2021.

She said that a growing problem for the state-owned company is that the government isn’t providing it with the resources it needs to invest and expand.

“Up to now, the support is not sufficient to reestablish cash flow nor to increase reserves and production,” Ortiz said.

“If they don’t do something to limit the company’s tax obligations, improve its capacity to generate cash or allow it to invest, it will end up affecting [Mexico’s] sovereign rating because 14% of revenue depends on what Pemex produces.”

Moody’s downgraded Pemex’s credit rating to junk in April, quickly following the lead of Fitch Ratings.

Marco Oviedo, chief economist for Barclays in Latin America, said the assumption in the proposed 2021 budget that Pemex will produce almost 1.86 million barrels of crude per day next year is very optimistic, pointing out that the state oil company has consistently failed to achieve production goals.

President López Obrador has pledged to “rescue” Pemex and make Mexico self-sufficient in gasoline by 2023.

To achieve the latter, the government is rehabilitating the country’s six existing refineries and building a new one on the Tabasco coast.

Investors and rating agencies have criticized the US $8-billion refinery project, arguing that it diverts funds from Pemex’s more profitable exploration business.

But López Obrador has rejected the claim that Mexico is better off sending crude abroad when it has to purchase gasoline, mainly from the United States, to meet domestic demand.

“There are still fools that say that it’s better to sell crude oil even though we have to buy gasoline. They forget that if we process our own raw materials jobs are created here,” he said in June.

Source: El Economista (sp) 

Reader forum

The forum is available to logged-in subscribers only.