Photo: Mahonefirm.com

By RICARDO CASTILLO    

Mexico’s state-owned energy companies Petróleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE) continue to be leading problems for the administration of President Andrés Manuel López Obrador (AMLO). Both are separate entities that must be dealt with separately. So we’ll start with a look at Pemex, and then consider th CFE a few paragraphs down.

Pemex and the Energy Reform

On Tuesday, July 16, current Pemex Director Octavio Romero Oropeza (ORO) presented the Pemex Business Plan for 2019-2023. There was nothing new in what many consider to be not so much a business plan, but just a carrying-out of AMLO’s mandate to do away with the devastating Energy Reform implemented by former President Enrique Peña Nieto tried to implement. AMLO is now undoing as much of that reform as he can.

On this issue, Peña Nieto had announced that “the Pemex goose of the golden eggs is dead,” but not as much as he had thought as evidenced by ORO’s plan.

The main business feature of the plan is the partial elimination of investor participation through the so-called oil rounds and farm-outs, which were the main feature of the Energy Reform.

The main business feature of the plan is the partial elimination of investor participation through the so-called oil rounds and farm-outs, which were the main feature of the Energy Reform. Instead, ORO in his plan, presented the integral services, exploration and extraction contracts, through which private investors will supply 100 percent of the risk investment in crude in a chosen production field and will get paid back in accordance with an agreement for each barrel of crude they produce. Investors do not participate in the marketing nor profits produced by the oil.

With this tactic, it is expected that Pemex’s Exploration and Production company will concentrate on known producing areas in shallow ocean waters, as well as land producing fields that still have a productive life. Deep water drilling may be postponed, but not fully discarded.

This is expected to be highly unattractive for big oil companies such as Exxon, Shell or Chevron, among others, but, indeed, a large number of smaller competitors from all over the world are interested in doing the drilling and extraction outsourcing service. If they strike oil, they might be doing well for years, but, of course, it is also a risky venture.

The number of potential investors has also led ORO into believing that the number of Mexican oil digs will increase exponentially, thus enhancing the possibility of getting the nation back into being a larger oil producer.

The number of potential investors has also led ORO into believing that the number of Mexican oil digs will increase exponentially, thus enhancing the possibility of getting the nation back into being a larger oil producer. ORO took time to criticize the three former presidents of deliberately having cut down production to lead the company into a divesting status, an accusation AMLO has made consistently for years. ORO noted that, over the past 14 years and during the Peña Nieto period. Pemex production dropped by 600,000 barrels a day. with the burden that the company’s debt grew from $52 billion to $107.6 billion.

For some, the oil rounds were seen as predatory and the new business scheme brings hope of curing the ailing oil enterprise, which continues to represent a major source of revenues for Mexico. Pemex is still producing.

It must be noted that in the past few weeks – since Fitch Ratings downgraded Pemex to junk bonds stature – AMLO has been fencing it out with the “hypocritical” ratings companies because, even when Peña Nieto announced that the company was no longer the golden goose, they stayed put and did not downgrade. For now, though, the Big Three international ratings companies do not like the new Pemex Business Plan. It is expected that they will lay off their onslaughts against it until the end of the year in a wait-and-see-how-it-goes approach.

ORO says Pemex expects to “inject” 141 billion pesos into the company, while also reducing the amount of taxes it pays by 128 billion pesos over the 2020-2022 period in a move to balance off its finances and make Petróleos Mexicanos again what it once was, “the motor of the Mexican economy.”

CFE and Fitch Ratings

Definitely, the most dogged pursuant of the current Mexican government is Fitch Ratings, which on Monday, July 15, ratified its disagreement with the Federal Electricity Commission for challenging natural gas pipeline contracts. Fitch claims the CFE should pay up and shut up for the already-built or nearly finished pipelines.

CFE Director Manuel Bartlett Díaz is staying put with the idea of challenging the companies for the “leonine” contracts they signed with the Peña Nieto administration, which not only had the CFE pay out for the construction, but allowed these companies to be the owners of the pipelines.

Fitch claims that the contracts with the abovementioned companies were signed as the result of international bidding, and, therefore, the only thing to do about them is comply with what the contracts say.

Fitch claims that the contracts with the abovementioned companies were signed as the result of international bidding, and, therefore, the only thing to do about them is comply with what the contracts say.

Meanwhile, the CFE argues that if the contracts were carried out under international laws, then it was the right to file suit against them before international arbitration instances and that Fitch and other ratings companies should not be criticizing the CFE because it has every right to do so.

That’s where things stand right now. The CFE is also arguing that Fitch is going against the popular vote in Mexico which last year placed AMLO in power. Fitch, say CFE sources, is living five years in the past, when it “hocked” the future of the nation in tandem with the Energy Reform.

In short, what seems to be certain for now is that the CFE and the pipeline construction companies are headed to court.