Federal Government to Reduce PEMEX’s Tax Burden

Mexico’s federal government has announced its intention to help PEMEX during the price downturn by reducing its tax burden. On Sunday’s special address to the nation, President Andrés Manuel López Obrador explained the aims of the delayed Energy Infrastructure Plan and echoed comments made by the Ministry of Finance and Public Credit (SHCP) on Friday, saying that PEMEX’s profit-sharing rate (DUC) will be cut to 54 percent.

López Obrador said that with this reduction “PEMEX will have extra resources of MX$65 billion (US$2.64 billion)” while and extra 400Mb/d will be refined by the National Refining System to reduce crude exports by around 33 percent or some 800Mb/d. The measures are intended to act as a lever of support for PEMEX and help it stabilize the company in the wake of the recent oil price crisis.

The DUC announcement brings forward the reduction published in the NOC’s business plan last year. The 2019 Business Plan noted that the federal government had “executed a series of actions intended to reduce the company’s tax burden to fortify its financial position and define the projects on which the recovery of its productive capacity will be based” including the planned DUC reduction from 65 percent to 54 percent by 2021. In 2019, the DUC was at 85 percent.

However, in a contradictory notice, the government’s close support of PEMEX was highlighted by Fitch Ratings as a reason of its PEMEX rating downgrade on Friday. In very similar wording to that used in Standard & Poor’s downgrading of PEMEX at the end of last month, Fitch cited “the strength of the linkage between PEMEX's ratings and those of the sovereign reflects the delay and uncertainty of exceptional support from the government towards the company in light of the financial difficulties PEMEX will face as a result of the decrease in oil prices,” as a reason for downgrading the company’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) from BB+ to BB and National Long-Term ratings from AA(mex) to A(mex).

Fitch’s downgrade came earlier than expected, as the company last week announced its plan to reassess the NOC’s rating by the end of April. Fitch also changed its rating of the government’s support to PEMEX from “moderate” to “strong”, while its assessment of the country’s control over its national oil company remained “very strong”.