Pemex to have more cash to invest post-reform, says CFO

Pemex to have more cash to invest post-reform, says CFO

Economy & Policy Corporate & Sovereign Strategy

Mexico’s energy reforms will give Pemex more scope for its own operations after years of underinvestment, Mario Beauregard, the firm’s chief financial officer, tells LatinFinance. Reforms passed late last year effectively ended the state-owned firm’s monopoly over Mexico’s oil industry.

Thanks to the reforms — the details of which are being hammered out by Mexico’s legislature in the coming months — new players would enter the sector and “in a gradual process, Pemex will begin to invest only in those projects and areas where it has a competitive advantage,” Beauregard said.

Pemex’s operations had been hampered by tax obligations before the reforms. But Beauregard told LatinFinance in the March/April edition he expects Pemex’s tax burden to decrease gradually and organically thanks to the reforms.

  PEMEX: More resources for own operations - CFO
Source: Matthew Rutledge

“To the extent that other players begin to generate resources for the federal government, and not just Pemex, our expectation is that Pemex will be left with more resources for its own operations,” he said. He did not, however, expect a tax decrease in the short term, he said.

Letting private firms into the oil industry is consistent with the spirit of the reform, advocates say. The legal overhaul will classify Pemex as a “productive state enterprise” (empresa productiva del estado) with looser links to the government and greater
autonomy over its budget and management.

In its new guise, the firm’s main priority will be to maximize profit, not meet public needs.

But not everyone is fully satisfied with the reforms. Fluvio Ruiz, one of the four professional members of Pemex’s board of directors, said the bill explained how the new competitive oil sector would work but failed to detail Pemex’s future.

“The government showed no explicit will to lower Pemex’s tax burden nor did they guarantee that there won’t be fiscal or regulatory asymmetry. That’s the big absence in the bill,” he said. Lowering taxes had little point if Pemex did not have true budgetary autonomy, he added.

In January Pemex issued its largest ever bond, selling a $4 billion dollar-denominated note with demand four times the amount sold. Beauregard said: “The bond is clear evidence of the benefits investors are seeing in this reform, not only for Mexico but for Pemex as well.” LF