June 19, 2019
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Mexico's plans for embattled energy sector spark criticism

 A July 7, 2018, photo of a Petroleos Mexicanos (Pemex) natural gas processing complex in the southeastern Mexican state of Tabasco. EPA-EFE/Jaime Avalos/File

A July 7, 2018, photo of a Petroleos Mexicanos (Pemex) natural gas processing complex in the southeastern Mexican state of Tabasco. EPA-EFE/Jaime Avalos/File

Eduard Ribas i Admetlla

Mexico City, May 24 (efe-epa).- Mexican President Andres Manuel Lopez Obrador's plans for getting heavily indebted state oil company Petroleos Mexicanos (Pemex) back on track and achieving energy self-sufficiency through construction of a new $8 billion refinery have sparked criticism from some analysts.


Pemex has financial debt of more than $106 billion and $64 billion in pension liabilities, making it the world's most indebted oil company.

Over the last few decades, the company's production has plummeted from 3.4 million barrels per day during the 2000-2006 presidency of Vicente Fox to its current level of 1.67 million bpd.

The company's weakness stems from the "manner in which it has been managed over the past 40 years," Luis Serra, executive director of the Energy Initiative at the Monterrey Institute of Technology and Higher Education's School of Government and Public Transformation, told EFE on Friday, adding that these problems amount to an "explosive cocktail."

He said Pemex has been used by successive governments as a "short-term budget balancer," with practically all of the profits it obtained being taken from the company in the form of taxes.

"This prevents Pemex from using the large revenues it has and allocating them to activities that can lead to future revenues," such as developing new oil fields, Serra said.

Additionally, 90 percent of Pemex's debt is dollar-denominated, meaning that the amount Pemex owes automatically rises if the peso depreciates against the greenback.

The left-wing Lopez Obrador, who took office last December, has announced a plan to reduce Pemex's tax burden in a bid to ensure it has the resources to develop new fields and boost output.


Lopez Obrador, who wants Mexico to stop importing gasoline from abroad in three years, has unveiled a plan to build a refinery at the southeastern port of Dos Bocas, located in his home state of Tabasco.

But early this month, his administration voided the bidding process for the refinery, saying that the four private consortiums invited to participate submitted bids that were above the government's $8 billion budget.

Instead, the federal government and Pemex will build the refinery. Construction work will start in July and is to be completed in 2022 at a cost of $8 billion, although experts say both the timeframe and the cost are unrealistic.

"It's the last thing Pemex needs," said Serra, who added that the construction of the refinery was bound up with electoral politics.

The expert said the refinery would not come close to producing the 600,000 bpd of gasoline that Mexico currently imports and therefore not enable the country to achieve energy self-sufficiency.

In remarks to EFE, energy consultant David Shields questioned the project on both technical and economic grounds and said it was to be built on land that is vulnerable to flooding.

He also said the use of public funds will provoke a very large long-term fiscal hole, noting that Fitch Ratings in January downgraded Pemex's credit ratings to the lowest investment grade.

According to Shields, ratings agencies want to see the company embark upon exploration projects that will lead to future profits.


The experts agreed that the only way Pemex can fund new oil exploration projects is by partnering with private companies.

The energy overhaul carried out by Lopez Obrador's predecessor, Enrique Peña Nieto, opened Mexico's energy sector to private investment for the first time since 1938.

Shields said a model of public-private "farmouts" was an attractive option for Mexico.

According to Mexican financial institution BBVA Bancomer, a single farmout could provide Pemex with an injection of $7 billion, or more than the $5.55 billion budgeted for the company this year.

Shields, however, said Lopez Obrador's government is not willing to open the door to the private sector because of his nationalist ideological position and rejection of foreign multinational companies.

Nevertheless, the president has ambitious plans for Pemex and announced Tuesday that his administration is targeting oil output of 2.65 million bpd by the end of his six-year term in 2024.

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