Mexico’s government is doing all it can to boost the fortunes of troubled state oil and gas giant Petróleos Mexicanos (Pemex), with the Finance Ministry again reducing the firm’s profit-sharing duty and injecting $3.5 billion to reduce debt.

Pemex

“Pemex is strategically important for the country, not only in its function as a provider of goods and services, but also for its relative importance in regional economic activity and the generation of employment in the southeast of the country,” the Finance Ministry stated. It is of “vital importance” to maintain the company’s profitability and ensure its sustainability in the long run.

Pemex has struggled to turn a profit for numerous years and is one of the most indebted oil companies in the world. Despite the high oil and gas price environment, Pemex reported a loss of 77.2 billion pesos ($3.7 billion) in the third quarter. Executives attributed the losses to an onerous tax burden, along with foreign exchange losses.

The Finance Ministry said structural challenges held back the firm. Pemex has a fiscal burden, along with high debt levels and cash flow requirements needed to meet payment obligations. It also noted the lack of resources to make the necessary capital investments to keep up with production goals.

The government has decided to make structural changes “of a permanent manner” to correct this, the Finance Ministry said. One change is to keep reducing the profit-sharing duty, or DUC by its Spanish acronym, which accounts for 80% of the direct fiscal burden. The DUC rate fell from 65% in 2019 to 58% in 2020 and is currently at 52%. That figure would now fall to 40%.

Beyond direct cash injections, the Finance Ministry is also helping in bond swaps and buybacks.

Through 2024, “the relationship between the Finance Ministry and Pemex will intensify” to improve the financial position of the company. Changes include a revamped business plan, corporate restructure and mechanisms and financial structures “that allow the public sector to co-invest in exploration and production projects to ensure the availability of a robust production platform and improve the structure of debt.”

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New Subsidiary

Pemex recently announced the creation of a marketing company for petroleum, petrochemical and natural gas products. Pemex CFO Alberto Vazquez is in charge of the new company.

The aim of the new company is to improve domestic market share in fuel sales. No new additional funds were required in the current budget, Pemex said. The news comes after President Andrés Manuel López Obrador in July announced the creation of another subsidiary called Gas Bienestar dedicated to liquefied petroleum gas distribution.

Since López Obrador came to power at the end of 2018, he has pledged to do all he can to “strengthen Pemex.” Still, giving Pemex prominence in the energy sector has caused a degree of consternation among international investors in Mexico. 

In October, a bipartisan group of Texas legislators asked the Biden administration to intervene on behalf of U.S. energy companies operating in Mexico because of what were deemed nationalistic energy policies. Sens. John Cornyn and Ted Cruz, along with 18 of the state’s 32 U.S. representatives, signed a letter to U.S. Ambassador to Mexico Ken Salazar expressing concern with “recent actions taken by the Mexican administration to favor state-owned enterprises and push out American investment.”