PEMEX Asked to Stand on Its Own Two Feet
Mexico's debt-laden state oil company PEMEX is facing pressure to resume financial debt repayments despite promises from President Andres Manuel López Obrador that his government would take care of them until at least 2024. On the back of soaring crude oil prices, the Ministry of Finance has called on the NOC to rely on its own resources from this month onward, having pulled capital contributions for April.
In 2021, Mexico's government made capital contributions to PEMEX of US$10 billion for debt repayments and granted the NOC US$3.62 billion in tax incentives. PEMEX is one of the world's most indebted oil companies, having lost its coveted investment-grade debt rating after struggling with years of declining crude production. An anonymous source interviewed by Reuters claims that between May and December 2022, PEMEX must pay back due principal and interest payments, mainly related to bonds, worth some US$3.8 billion. The finance ministry meanwhile cites the recent increase in PEMEX’s cashflow thanks to a worldwide surge in crude prices as reason for the NOC to stand on its own two feet again.
The ministry has also put pressure on PEMEX to resume amortizations arising from debt issuances, which this year tally US$7.5 billion, with another US$7.4 billion and US$8.8 billion to be paid in 2023 and 2024 respectively. In 2021, debt amortizations totaled US$6.4 billion. Moreover, PEMEX is expected to assume the burden of peso-denominated financial debt maturities in 2022, totaling US$8.4 billion, and a further US$15.2 billion of debt commitments in other currencies.
A source informed Reuters that “the additional income from PEMEX will be significant and that allows the company to receive less support”. However, it remains unclear just how much extra income is expected to be accrued as the government seeks to capitalize on the global increase in crude oil prices, resulting from the conflict in Ukraine and subsequent boycott of Russian fuel.
PEMEX also faced fresh criticism from the Business Coordinating Council (CCE) of Ciudad del Carmen, Campeche, where the NOC has been in debt with some of its members since Dec. 2021. Local CCE President Alejandro Fuentes Alvarado accused Octavio Romero, CEO, PEMEX of duplicitous behavior: the NOC’s CEO insists payment will be sent to suppliers but is yet to make good on his promise. Fuentes also claimed PEMEX’s reliance on credits is crushing local businesses.
As PEMEX adjusts to the government pulling its funding, the NOC has begun drawing up plans to pay off the US$3.5 billion worth of financial debt independently. However, President López Obrador did provide assurances that the government will provide PEMEX with capital this year, in accordance with its maturity profile.
In response to the news, the Mexican peso reached its lowest level in a month, sliding down 1.1 percent to 20.20 against the dollar, the biggest fall of any Latin American currency in April 2022. Nevertheless, President López Obrador is hopeful that the extra revenue collected from increased oil prices will subsidize domestic gasoline and diesel prices to help to contain inflation while also addressing refinery repair costs. The president seeks to maximize production at PEMEX plants to deliver on his promise of energy sovereignty by the end of his sexenio in 2024.
Neither the Treasury nor PEMEX responded to Reuters’ requests for comments.