Pemex is no longer the giant that boosted national finances and led the country to the oil boom in the 1980s. Just take a look at its debt or its sales. But in the administration of President Andrés Manuel López Obrador, the vision is different and continues to deposit in the state the main promise of growth of the national economy, even after the health emergency that collapsed the price of oil, led to fuel demand. its lowest point in decades and dragged the company into its worst financial crisis.
Since the beginning of the six-year term, President López Obrador has maintained a fierce speech that defends what he calls the “rescue” of the Federal Electricity Commission and Pemex. The premise has not changed even with the outbreak of the coronavirus, which led a large number of oil companies to lower the level of production or close some of their refineries and reduce the extraction of crude, since low prices reduced the profitability of the activity , considered the most profitable in the sector.
But the company that Octavio Romero Oropeza runs did not change its strategy. The construction of the Dos Bocas refinery continued, without slowing down, opting to continue the maintenance plan for the rest of the refining complexes and increase their use, and marginally lowered crude production levels, mainly due to a forced agreement. with the Organization of Petroleum Exporting Countries (OPEC).
The markets expect a change in its business plan, but there is nothing to indicate another strategy, at least not in the latest document from the state company in which it details its steps until 2025. No new private participation and the focus on refining continue being the foundations of the plan.
The oil company closed 2020 with what its own management calls “the worst crisis in its history”, with losses of almost 481,000 million pesos, mainly driven by a variation in the exchange rate. In the first quarter of this year it reported a loss of 37,357 million pesos, a setback to the historical losses of last year.
“The combination of elements that exogenously affect the company, plus the administrative and public policy decisions in the energy sector that were taken prior to the pandemic generated this very harsh outlook for the company,” says Víctor Gómez Ayala, Deputy Director of Economic Analysis of Finamex Casa de Bolsa.
Last year’s losses were no exception. Since 2009 –except for 2019–, the company closes all its negative financial balances, that is, with expenses greater than its income. And the results of 2019 were due in large part to the government support close to 122,000 million pesos. This aid has been based on the injection of resources and a constant decrease in the rate of the Shared Utility Right (DUC), the tax for the extraction of crude oil that represents about 80% of the contribution that the company contributes to the federal government. .
The debt problem
For this year, the company will receive from the administration 170,000 million pesos or about 8.300 million dollars as support to improve its finances. The resources announced so far will go to pay the repayments of its debt, which places it as the oil company with the most liabilities in the world and leaves it with great exposure to exchange rate risks. So far, these supports have not worked. Its liabilities closed the first quarter of the year at 113,227 million dollars, an increase of 7% and equivalent to 10.7% of GDP last year.
A study by the Baker Institute at Rice University describes the state company as a “drag” on the country’s GDP. The financial bet that the government has made is not economically justified, he says, and the reasons that have led to its support are loaded with a large ideological component.
The federal administration has directed an amount equivalent to 1.1% of GDP to the economic rescue for the pandemic, while financial support for the state during this year could be about 1.4% of GDP, according to the document. “The government has heavily subsidized Pemex so that it can continue to function as it has done, without investment plans or the development of new technologies, the results are catastrophic,” the study adds.
The agency Moody’s, which downgraded Pemex last year, considers the oil company the biggest risk for the sovereign’s rating. He warned that the risk of greater pressure on the note lies in the possibility that government support exceeds 1% of GDP.
The government has decided to reduce the huge tax burden, but the oil company shows no signs of progress. “This amount of debt is not attributable to the poor economic performance of 2020, but to the accumulation of past financial deficits, as well as other liabilities,” said the CIEP in a recent analysis.
Last year was atypical, but Pemex’s actions were not enough to contain the crisis. “The business plan of the company hurts him. (…) Pemex is doing the best it can with the limitations of its business strategy and its heavily burdened balance sheet, ”says Nymia Almeida, Pemex lead analyst and Senior Vice President of Moody’s Investors Service.
In addition to the financial crisis, the oil company has not met any of its goals. First, it canceled the plan to build two refineries to opt for just one in Dos Bocas, Tabasco, which has already exceeded the initial budget of $ 8 billion. He also lowered his crude production goal – the most important in the presidential speech – from almost 2.7 million to two million barrels by 2024 and has not exceeded 1.7 million barrels of daily production.
The president has said that the decision to lower the goal is to mitigate climate change, but analysts agree that, prior to this, the company did not have the planning or sufficient resources to achieve such an ambitious goal. “It has not delivered its production promises, at least for oil. And the promises they make are getting smaller and smaller, that is, their production targets from 2018 to 2020 are decreasing, but it is not even delivering what it promises, ”says the Moody’s analyst.
The same situation is seen in refining. In March, the most recent data at the end of this report, Pemex had taken its complexes to their highest use in almost four years, processing 823,000 barrels per day, but still far from the million barrels it had promised by the end of 2019.
And now, beyond the financial support, the administration of Morenista extraction has approved two reforms to the Hydrocarbons Law in order to reduce private participation and strengthen the state one in the oil market, mainly in gasoline, one in which the president has placed a greater emphasis.
The changes have just started, but the commitment to Pemex is already more than two years old and it still does not give results that suggest that the oil company is not going to collapse.
