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LitioMx Should Avoid Adopting PEMEX’s Model: Moody’s

By Fernando Mares | Tue, 09/20/2022 - 20:01

The proposed structure of Litio para México (LitioMx) has generated a series of criticism, as some experts consider the company’s organization to be irresponsible since it prioritizes political matters over technical knowledge. In this context, the credit rating agency Moody’s considers that the company should avoid replicating the structure of the state oil company PEMEX. 

“If the model that PEMEX has used will be used in the lithium industry, there is a high risk of inefficiency,” said Gersan Zurita, Senior Vicepresident, Moody’s.

Zurita emphasized that the idea of running a state-owned company is not bad as such, but its result will depend on how flexible is the government in managing it considering the near-constant market changes. “Flexibility is better than inflexibility since market conditions change. [Lithium] is new in Mexico, but it is not accessible to foreign companies. This could be potentially positive, but being flexible could be really a plus,” Zurita said. 

Zurita said that PEMEX has constantly made decisions based on political aspects rather than technical factors, a problem that some industry insiders are afraid could be replicated by LitioMx. Zurita added that state companies usually make decisions that do not consider economic factors but rather focus on politics or budget issues, a situation that leads to operational inefficiencies. 

The federal government has evaluated different strategies to extract lithium, but the Bolivian model appears the most likely since it is a model where the state controls the entire mineral extraction process. Nonetheless, Zurita considers that the model has not paid off; as a result, derived in the Bolivian government opted for associating with more experienced private companies. 

Zurita considers that the Chilean model is more viable because the government acts as a regulator and grants production permits to private companies, which pay a fee after extracting the mineral. Zurita assured that the fee model has resulted in greater revenues than those generated by the state-owned copper company Codelco. “State-owned is not a bad strategy, all depends on the execution, on what kind of incentives it gives to operators to work aiming not just to complement the national budget, because those decisions will be political and maybe not optimal for project execution,” Zurita added.
 

The data used in this article was sourced from:  
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Fernando Mares Fernando Mares Junior Journalist and Industry Analyst