Mexico’s Cash Cow Runs Dry
By RICARDO CASTILLO
There’s no question about it: Mexico’s once-prolific cash cow has run dry.
The country’s economic national pride, the state-run oil giant Petróleos Mexicanos (Pemex), is now in financial straits, with its latest corporate report showing that just in the last quarter of 2018, it “lost” over 2 billion pesos. That definitely makes Pemex the only oil company in the world operating in the red.
What seems now to be undeniable is the fact that during Mexico’s “neoliberal period” (1982-2018), Pemex’s 12 directors managed to amass the company’s current debt of over $100 billion without ever bothering to publicly explain where these monies went. One thing is certain: The funds never went to the purposes for which they were acquired for, namely, to improve Pemex facilities.
Over the years, the parade of Pemex CEOs – each appointed by the president in turn – refused to make public the details of how the borrowed money was being used, but it is clear that Pemex’s debt continued to spiral up at a dizzying rate to become what is now almost certain to be a brutal near-knockout for the ailing colossal.
In the midst of this current financial crisis, Pemex has been demoted by Fitch Ratings from a BBB+ to a BBB-, plunging its market bonds value to nearly junk status.
President Andrés Manuel López Obrador (AMLO) – the main defender of Pemex over the years – did not like the Fitch relegation, but it is now foreseeable that, come June, another major international ratings house, Moody’s, may also downgrade Pemex.
The problem over the years is that billions upon billions of dollars that Pemex borrowed were never reflected in facilities improvements or increased production. Quite to the contrary, the company became a dollar-sucking financial black hole. This year alone, Pemex – or the federal government – has to pay off $15 billion in interests to lenders. And pay it must!
During the final week of February, the Superior Audit of the Federation (ASF) issued a statement saying that between 2013 and 2017 Pemex did not use contracted loans to improve its production assets, which lost 19.8 percent of their value during that period. Plus, the brutal facts show that during the administration of former President Enrique Peña Nieto (EPN), the government did not renew facilities and instead used loans to pay interests on Pemex’s ever-increasing debt — a debt that under Peña Nieto – the so-called “energy reformist” — surged from 4.7 percent to 9 percent of Mexico’s entire Gross Domestic Product.
In ASF numbers, during Peña Nieto’s six-year term, Pemex increased its deficit from 185,246 billion pesos to 1.5 trillion pesos.
An additional complication to Pemex’s unwieldy debt was the fact that, during the Peña Nieto administration, Congress authorized the company administrators to contract further financial obligations without the supervision of the Secretariat of the Treasury (Hacienda), which had traditionally been the watchdog of Pemex’s loans. Without government oversight, Pemex execs simply went wild borrowing money – all of it in greenbacks – fully knowing that they were sinking the company into the vicious circle it is in now. The ASF is currently demanding that Hacienda once again supervise all of Pemex’s loans, even though, for now, Pemex is borrowing more cash just to pay off interest fees.
President AMLO is deeply concerned because Pemex is a sick giant suffering from multiple sclerosis both as a result of age and overspending, with over 120,000 employees and a humongous payroll and pensions outlay.
Add to all this the massive theft going on both inside and outside Pemex. Mexico has just witnessed how AMLO managed to stop in its tracks the enormous fuel theft that was being carried out from ducts and deposits by “trustworthy” (de confianza) employees and outside thieves alike, a piracy that cost the company, AMLO said, more than 65,000 billion pesos a year. Fuel theft has now been almost completely brought under control, but Pemex, the damage is already done since the “huachicoleros” (fuel thieves) had their hay day during the Peña Nieto administration, which did absolutely nothing to protect the state-owned company.
Moreover, all income from Pemex is heavily taxed by the Mexican Congress, which doesn’t help the company’s finances and only adds an extra burden on its debt accumulation.
It is clear now that Peña Nieto had the harrowing intention of leading Pemex into bankruptcy in order to privatize it. Opposition to his 2013 Energy Reform was stiff, and though he managed to pass it through Congress with the backing of most political parties, the package also gave birth to a fantastic political movement led by now-President López Obrador and the practical death of EPN’s once-powerful Institutional Revolutionary Party (PRI), as well as the Party of the Democratic Revolution (PRD). A third party, the conservative National Action Party (PAN), managed to survive with 24 percent of the vote in the July 1 election, but it is now walking on crutches. These parties backed Peña Nieto’s Energy Reform, which almost gave Pemex the final jab it needed to go six feet under.
Almost, but not quite. And voters nearly ousted the three parties into oblivion. But the damage to Pemex was already done, leaving AMLO with an 800-pound gorilla to dance with.