Last Friday, the Mexican government said it would bail out the floundering state oil company Pemex with $5.5 billion in additional funds this year, but that won’t begin to pull the failing company out of debt.
In a devastating government audit of Pemex’s 2017 operations, published late on Wednesday, it was revealed that the company managed to rack up $106 billion of debt during the six-year term of former President Enrique Pena Nieto, according to Reuters.
Mexico’s Federal Audit Office (ASF) was very blunt in its report – singling out Prmrx’s use of public resources to finance the company’s fertilizer subsidiary and a failed power generation unit. The fertilizer company had net losses in 2017 of $665 million and its assets dropped $1.1 billion in value.
“It destroyed value,” read the assessment, the last of three reports by the audit office on the state of government finances in 2017. Additionally, rating agency Fitch downgraded Pemex’s credit rating to one notch above junk last month.
“We have made the decision to support Pemex with everything we’ve got,” said President Andres Manuel Lopez Obrador, a left-wing energy nationalist who has made rescuing the firm a priority. The $5.5 billion in funds given to Pemex will be a mix of cash, tax benefits, pension fund support, and expected savings.
The company is supposed to pay down its massive debt and invest more in its production which has dropped considerably. The plan is to give Pemex $800 million in tax benefits, $1.3 billion in cash and $1.8 billion in assistance paying the company’s massive pension bill, officials said.
The final $1.6 billion will come as savings from combatting theft from Pemex’s fuel pipelines – something that is still going on and has proven to be very profitable for local cartels. Even with the plan going forward, analysts said it would probably not be enough, according to the AFP.
Pemex Chief Executive Octavio Romero said on Thursday that agreements already in progress will continue, but added that the company’s focus will now be on developing service contracts in the oilfield rather than so-called farm-out deals.; The decision by Pemex could end up having repercussions, reports Bloomberg.
Pemex oil production has fallen to its lowest level since the 1990s – resulting in the decline of Mexican light crude grades such as Olmeca and Isthmus.
“Pemex alone can’t deliver all of Mexico’s production needs from a financial or operational standpoint,” said Pablo Medina, vice president of Welligence Energy Analytics in Houston. “Given its stretched finances, it would be wise to leverage its limited capital through partnerships.”
