AMLO guarante a Pemex tax relief, won't tap
rainy day fund
Pemex will sign contracts for 20 fields in May that will help increase production this year.
Pemex to reconfigure refineries, reverse production drop
Funds for Pemex's seventh refinery are guaranteed by AMLO
Amy Stillman / Bloomberg
Petroleumworld 05 17 2019
Mexico's state oil company is set to receive added tax breaks to help reverse long-term production declines and avoid tapping the nation's rainy day fund, according to its chief executive officer.
The country's Finance Ministry is opting for a new tax strategy for Petroleos Mexicanos starting next year that will provide an “important reduction” in the company's contributions, Octavio Romero said in an interview, declining to give an estimate for the savings. The gradual cuts, to be spread over five years, would complement incremental tax breaks announced in February that were worth 90 billion pesos ($4.72 billion) over six years. He said the new tax regime will be announced in “the coming days” and it will be used instead of using about $7 billion from the Oil Revenue Stabilization Fund, known as FEIP, which had been previously proposed by the Ministry.
The tax breaks are the latest in a string of measures aimed at shoring up the finances of the beleaguered driller, known as Pemex, whose $106.5 billion debt is the highest of any oil company. The funds could help Pemex stave off another credit downgrade after Fitch Ratings Inc. reduced its rating to one notch above junk in late January, and provide a much-needed liquidity boost.
“The idea is to allow Pemex to meet its planned investment and not create a burdensome situation for public finances,” Romero, 60, said in an interview in Tabasco, the location of Mexico President Andres Manuel Lopez Obrador's flagship energy project, a 300,000 barrel-a-day refinery that Pemex has been charged with constructing and operating. “It's aiming to strike a balance."
The tax cuts would follow the signing of an $8 billion syndicated loan, of which $2.5 billion will pay off existing debt and $5.5 billion will replace some credit lines. The company is seeking to issue no new debt this year or next year, said Romero.
Lopez Obrador has saddled Pemex with managing the construction of a seventh refinery after none of the companies invited to bid on the project met the government's ambitious three-year construction timeline and $8 billion budget.
The government has designated 50 billion pesos to the Dos Bocas refinery project this year, and the remainder of the funds “are guaranteed” in the budget, said Romero. Pemex will manage the project jointly with the energy ministry, and contract private companies to build the refinery units, he said.
Pemex also aims to reconfigure its six existing refineries to run at about 90% of capacity in two years, up from about 35% today, said Romero.
Also see: Mexico to cut fuel oil from crude hedge formula: Pemex Ceo
Romero, an agronomist by trade and longtime political ally of Lopez Obrador, was nominated by the president in July, and took over in December. The transition phase was “fundamental” to learn the ropes, said Romero, who just landed in Villahermosa and was preparing for a week of back-to-back meetings there. The schedule is tough, with Romero working for weeks on end without a break.
“Sometimes I forget what day it is,” he said over the course of a two-hour interview, looking haggard.
It's been a steep learning curve. In the first weeks of his leadership at Pemex, a fuel pipeline exploded due to an illegal tap, killing more than a hundred people in Hidalgo state. "It was brutal, a very difficult experience."
The tragedy led Pemex and the government to double down on its strategy to end fuel theft, measures that he says have born fruit. Piracy fell more than 90% between November and April, he said. Pemex expects to receive about 32 billion pesos in additional revenue in 2019 as a result of combating theft.
Both Romero and Lopez Obrador were born in Tabasco, an oil state in southeastern Mexico that has fallen into decline in recent years as profits have dried up. Romero echoes his boss's sentiments on the need to revive oil ghost towns by expanding drilling and weeding out corruption at Pemex.
This will be achieved by installing new management, while a company wide restructuring has resulted in several hundred job cuts, he said. Pemex's former exploration and production chief Miguel Angel Lozada has also stepped aside while he is being investigated for corruption, Romero said.
Pemex bonds extended gains for a fourth-straight day since the latest rescue package was announced on Monday. Yields on the bonds maturing in 2027 fell 5.8 basis points to 6.4% on the day.
Amy Stillman from Bloomberg.
bloomberg.com/ 05 16 2019
We invite you to join us as a sponsor.
Circulated Videos, Articles, Opinions and Reports which carry your name and brand are used to target Entrepreneurs through our site, promoting your organization’s services. The opportunity is to insert in our stories pages short attention-grabbing videos, or to publish your own feature stories.
Copyright© 1999-2019 Petroleumworld or respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ (PW) stories by anyone provided it mentions Petroleumworld.com as the source.
Other stories you have to get authorization by its authors. Internet web links to http://www.petroleumworld.com are appreciated.
Petroleumworld welcomes your feedback and comments, share your thoughts on this article, your feedback is important to us!
We invite all our readers to share with us
their views and comments about this article.
Write to email@example.com
By using this link, you agree to allow PW
to publish your comments on our letters page.
Any question or suggestions,
please write to: firstname.lastname@example.org
Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixels