(Expansion) – Governments come and go, but Pemex’s financial situation has weakened and it has been experiencing a financial crisis for some years. It has worsened since 2014 and it is urgent that the current government has to rescue it to avoid endangering the economic stability of the country.
Recall that according to Expansión, of the 500 most important companies, Pemex ranked first for many years, but by 2021 it moved to second place.
Pemex’s financial analysis is important and has to be independent from the discussion about its legal framework and also from the energy policy to avoid confusion. The financial deterioration of the company has been gradual for more than a decade and is explained by operating variables.
Data from the end of 2019 indicate that Pemex had negative capital for an amount greater than 10 points of GDP. This places the company in a vulnerable situation and gives evidence that it requires government support; in other words, a ransom.
Pemex has very serious operational problems, such as the sustained drop in oil production, a price environment that has not been so favorable since 2014 and a low use of its installed capacity in the industrial segment. Fluctuations in these variables have caused a change in your income.
Pemex has a structural financial problem, which is a reflection of the problems in the operational part. In addition to the poor performance of income, there is an increase in operating costs, which has led to a lower operating flow. The financial problem is exacerbated because the government has taxed it almost all the flow it generates for many years.
The consequence is the losses that determine the path of negative capital. An additional problem is that to finance Pemex’s investment it had to resort to financial debt because it had no operating cash flow.
The financial situation of Pemex is not sustainable without the support of the government, it requires the latter in order not to default on its financial obligations and be viable. The support can come in different ways, such as a lower collection of taxes or fiscal transfers.
The government must choose a strategy and the scope of the rescue to Pemex. This decision will define the new role of the company in the country’s economy.
a) Necessary support so that it does not fail to comply with its financial obligations and cover operating losses. This would cost two to three points of GDP that the Government would have to finance in the next five years.
b) In addition to covering the above concepts, support is given to maintain an adequate level of investment. This would have an estimated cost of four to six points of GDP to be financed over the next five years.
c) Deep restructuring separating the exploration segment from the rest of the company, with the Government assuming the labor liability and part of the financial debt. The cost of this reorganization would be between 10 to 12 points of GDP and the liabilities would have to be assumed in the short term.
An orderly rescue of Pemex must be undertaken because its downfall may pose a significant systemic risk.
Editor’s note: Jorge Sánchez Tello is director of the Applied Research Program of the Foundation for Financial Studies (FUNDEF). Follow him on and on. Opinions in this article are the sole responsibility of the author.
