With colossal debt still standing at over US$113 billion weighing down Mexico’s state oil company PEMEX, President Andrés Manuel López Obrador’s vow to facilitate its rescue is difficult to realize. Through state-backed investment and a fiscal reform, experts see a viable path forward for this mission.
Despite the government’s efforts to decrease tax burdens and offer capital injections, more is needed to guide PEMEX back to a safe financial state. Fluvio Ruiz Alarcón, Independent Oil and Gas Analyst and Former Independent Advisory Board Member, told El CEO that a deeper reform would be necessary: “The tax reform would allow a profound transformation of PEMEX’s fiscal regime to carry out institutional changes that give it management and budgetary autonomy and to make its investment decisions based on the oil industry’s logic,not on the short-term needs of the Mexican state,” said Ruiz. “With a reform, PEMEX's tax burden could be permanently lightened, temporarily supported to significantly reduce its debt and restructure its liabilities.”
Ruiz emphasizes that PEMEX’s massive debt came about after the NOC was subjected to a tax regime based on its income, not on profits. “For 40 years, PEMEX has had a suffocating tax regime. For at least the last 25 years, the company as forced to go into debt to pay taxes,” he said. As oil prices dropped, PEMEX’s tax burden became comparatively greater. As such, rescuing PEMEX would involve more drastic measures, addressing how and when the company pays taxes and uncoupling it from the national accounts.
Though Ruiz’ proposed plan could prove beneficial, the government has not yet addressed the issue to this extent. What the government has done, however, is upping the amount it aims to invest in PEMEX. For 2021, the government allocated US$6.7 billion to the NOC. In December of 2021, the government said it readied a package of US$3.5 billion.
Despite the disastrous impact of the COVID-19 pandemic, the higher oil prices it caused combined with higher demand due to economic reactivation could become a benefit to PEMEX. “Prices of crude oil and petroleum products should benefit as demand for oil moves above 2019 levels,” a UBS Global report read. “Infection rates are increasing worldwide and restrictions are being applied in several countries. The air travel sector, among others, is suffering, but oil investor optimism is tangible,” said Tamas Varga, PVM, to Milenio. Brent, for instance could rise as high as US$80-90/b in 2022 and many expect that the Omicron variant of COVID-19 will prove to be milder than previous variants.