Fitch Ratings late last month revised its outlook for Mexico, citing, among other things, potential energy policies to be implemented by incoming President-Elect Andrés Manuel López Obrador.

Fitch credit analysts retained their investment grade BBB+ rating on Mexico’s sovereign debt, but lowered their long-term, foreign currency issuer default rating (IDR) outlook to negative from stable.

Fitch cited uncertainty over the future of energy policy for Petroleos Mexicanos (Pemex) by under the incoming administration, as well as cancellation of a $13 billion airport as factors that drove the decision.

“Proposals for large capital investments by state-owned oil company Pemex, whose balance sheet and standalone creditworthiness have been under pressure (resulting in Fitch revising the outlook on the company’s rating to Negative), add to the growing risk related to contingent liabilities for the sovereign,” analysts said.

López Obrador, who takes office Dec. 1, has pledged multibillion-dollar investments to upgrade existing oil refineries and to build another one, in order to ensure energy security.

Critics have argued that Pemex, the most indebted oil company in the world, is in no condition to take on a project of this magnitude and that it should instead focus on reversing a 15-year oil and gas output slide through partnerships with the private sector.

López Obrador has set a goal of boosting oil output to 2.5 million b/d in 2024 from 1.8 million b/d currently, but he has objected to bid rounds that award operating stakes in upstream acreage to international oil companies.

The president-elect said recently that he will suspend upstream bid rounds until they begin to “show results.” The next tenders are scheduled for February.

Investors were further spooked by a bill introduced in the lower congressional house by a member of López Obrador’s party to bring independent energy regulators Comisión Nacional de Hidrocarburos (CNH) and Comisión Reguladora de Energía (CRE) under the control of the executive branch. The move, some analysts said, would give an unfair advantage to Pemex and scare away private capital from Mexico’s newly liberalized energy sector.

The most cataclysmic measure taken by the president-elect so far, however, was late last month, when he affirmed plans to cancel the construction already underway of Mexico City’s international airport, in which $100 million to date has been invested.

“The decision to cancel the construction of a new airport for Mexico City sends a negative signal to investors,” Fitch analysts said.

Canceling the project has stoked fears that a similar fate could await the 107 oil and gas contracts awarded through bid rounds since the 2013 energy reform.

López Obrador has argued that the key to restoring oil and gas output is to give Pemex a bigger budget and more autonomy. Proponents of the reform, meanwhile, have countered that Pemex should take advantage of bid rounds and public-private joint-ventures to share risk and technological know-how with the private sector, particularly in areas such as unconventional and deepwater exploration and production (E&P), in which Pemex lacks experience.

Although Pemex swung to a profit of 27 billion pesos ($133 million) in the third quarter from a year-ago loss of 102 billion pesos, production continued to slide.

Local think tank Pulso Energético highlighted in a recent note that Pemex net debt stands at $14/bbl of proven reserves, up from $9.20 in 2015.

“Oil production, dominated by state-owned Pemex continued to decline in 2018, bucking expectations that it would stabilize,” Fitch analysts said. The transition team for López Obrador “has been reviewing contracts signed with private oil companies and has sent mixed signals on the energy reform, which allows private oil companies a bigger role in the industry in return for higher investment and production.”