PEMEX’s Latest Financial Conundrums

PEMEX’s insurance payments increase while the risk represented by its debt continues to rise, as indicated by a number of internal PEMEX reports, according to an article from La Jornada.  This and other financial reports paint a complex picture for the NOC. 

Insurance premiums increased by 16 percent in 2020 in comparison to 2019, reports La Jornada. PEMEX is making these payments as part of an insurance plan contracted in 2017 to protect itself from oil price fluctuations. The NOC pays for this plan in exchange for remediation payments in case of a sudden drop in the international market price of the Mexican mix. These remediations pay for the difference between the decreased oil barrel price and an oil barrel price that can fulfill the revenue requirements of the state. These premium increases in 2020 could be considered understandable given the oil barrel price crisis that assaulted the industry in spring of that year. However, the corresponding remediation payments only increased by 2.1 percent during that same year, demonstrating a financial imbalance in the NOC’s balance sheet that became part of its yearly losses. 

The NOC is also dealing with the implications of its ever-expanding debt. Moody’s released a report this week that compares the debt of 87 major Latin American corporations including PEMEX, reported by El Economista. Moody’s considers that this group structurally represents all of the Latin American economy. All of these companies make debt payments with high interest rates as they represent higher risks. PEMEX, however, holds 36 percent of all that high-risk debt. This percentage makes Mexico the highest percentage holder out of all the Latin American countries surveyed. The next country on the list is Brazil with 16 percent, 5 percent of which comes from Petrobras. 

Finally, PEMEX’s financial status also influences Mexico’s exchange rate. A report released this week by Alto Nivel makes clear that PEMEX is one of Mexico’s largest suppliers of dollars. If, as the report hypothesizes based on currently stated government strategy, more and more of PEMEX’s crude begins to be directed towards national consumption and processing, the role that it plays as a supplier of dollars will have to be supplanted by the federal government. This could, in turn, trigger an issue in the exchange rate that could then cause a potential chain reaction, where PEMEX’s national consumption revenue in Mexican currency is devalued. This would affect the corresponding state revenue extracted from it, and so on and so forth. It is assumed by the tenets of the current national strategy that reducing exports and focusing Mexico’s crude in its own refineries will be a boon to the national budget because foreign fuel purchases and imports will become unnecessary, but Alto Nivel’s report questions the validity of that assumption. All three of these items represent an important cross-section of the NOC’s current financial quagmires as it stands to benefit from congress’ latest legal proposals.