By THÉRÈSE MARGOLIS
On the morning of Friday, Feb. 15, Mexican President Andrés Manuel López Obrador (AMLO) eagerly presented his four-punch bailout plan to save the country’s financially lethargicm state-run oil company Petróleos Mexicanos (Pemex) from economic collapse.
By that same afternoon, at least three international financial institutions and one of the “Big Three” global credit rating agencies had declared the plan futile.
AMLO’s 107-billion-peso bailout strategy to save Pemex – the world’s most-indebted oil company, with outstanding financial obligations of more than $106 billion – is intended to revitalize the ailing company with injections of capital, a reduction in employee pensions, a fiscal relief package and a crackdown on fuel theft.
During his daily early morning press conference, the president, along with Pemex Chief Financial Director Alberto Velázquez García, outlined the ambitious plan, which includes a 36 percent increase in investment of 25 billion pesos and a promise to not incur any additional debt in 2019.
Pemex is also slated to receive a 35-billion-peso refund from the Mexican Treasury and a subsequent 15-billion-pesos tax break later this year, plus increasing fiscal relief that could total as much as 30 billion pesos by the year 2020.
Although there are no hard numbers indicating how much Pemex will benefit from the president’s nationwide program to curb huachicoleo (fuel theft), which he launched in December, Velázquez García said that the program will render at least 32 billion pesos a year in additional revenues for the oil giant.
AMLO promised that his government will do “whatever it takes to make Pemex’s finances healthy,” even if it means committing more money in the future to its recovery.
But outside financial analysts were not impressed with the president’s bailout scheme.
Within hours of its announcement, JP Morgan, BBVA Bancomer and Citi Banks had proclaimed it “insufficient and deceptive,” warning that it will take more than heroic financial measures and grandiose ceremonies to make Pemex profitable.
The financial rating firm Fitch, which in late January downgraded Pemex’s credit by two notches (just above junk) due to “insufficient investment” and “declining production,” also disapproved of the president’s new plan, saying that it was “unlikely” to boost Pemex’s financial perspectives.
In a written statement, Fitch said that, in order to restore its production to previous levels of 940 million barrels a day, Pemex would require an injection of between $13 billion and $18 billion a year in fresh capital, at least two and a half times what AMLO earmarked in his bailout package.
In the last decade, Mexico’s crude oil production has dropped dramatically as output from mature fields has tapered off.
Despite a landmark Energy Reform by AMLO’s predecessor, Enrique Peña Nieto, in 2013, which was intended to free up the Mexican carbohydrate industry by allowing foreign investment, there have been no major new startups to compensate for that production slowdown, which has continued into 2019.
As a result, Pemex, which is the key source of revenues for government coffers, has become a financial albatross with dwindling outputs and increasing debt.