The bad decisions that had condemned Pemex

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The company Petróleos Mexicanos has gone through difficult days, at this moment it is on the ropes and has lost the confidence of some analysts

Pemex is the state oil production and distribution company in Mexico, so there's no doubt of its importance. In 2014, Mexico was among the top ten oil-producing countries in the world, being one of the largest exporters to the United States, according to data offered by the CIA in The World Factbook. However, that is not their current situation, because the historical mismanagement and the harsh situation worldwide in the production of oil and all related activities, has made this Mexican company is on the verge of collapse.

Leer en español: Las malas decisiones que han condenado a Pemex

Since October of last year, even before the aforementioned López Obrador bench, "Juntos Haremos Historia" (the political parties Morena, PT, and PES), assumed power in Mexico, the rating agency Fitch Ratings announced that it would change its perspective from neutral to negative for Pemex.

This became a reality at the beginning of the year, with the state-owned company having a BBB- rating, and gave notice of the strong crisis that was ahead. Although the BBB- rating still contemplates the possibility of foreign investment, it is not yet CCC, the worst rating, it does take for granted that Pemex is not at its best and urgently needs a restructuring.

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López Obrador and the Pemex 'strikes'

In response to this crisis, the López Obrador government has tried to act quickly, although its measures have been widely debated both inside and outside of Mexico.

The Mexican headquarters of Banco Citi has taken an interesting narrative in this case: they have called "strikes" different key moments where Pemex, from their perspective, has made the wrong decisions. The first of these, the farthest, occurred in August 2018, still under the Peña Nieto mandate, and involved the firm Lewis Energy with Pemex, to invest in Hidalgo, Coahuila, a project that announced sustainability problems and that should be analyzed in a deeper way.

This fact, however, has not taken as much relevance as the next two "strikes". The second of them, according to Citi, was the plan that AMLO announced to avoid the financial crisis of Pemex. This plan included an injection of capital by the State, tax reduction and restructuring at the labor level, in such a way that Pemex would return to profitability. For analysts, this plan is insufficient, since Pemex's current debt far exceeds the amount expected to be obtained from investment and restructuring.

According to El Financiero, in an alliance with Bloomberg, Pemex's debt reaches the amount of 3.6 trillion Mexican pesos, while the "bailout" would barely reach 41 billion pesos. Both astronomical figures, but unfortunately, the second is not enough to correct the giant debt that Pemex has.

The goals of Morena

As if that were not enough, the third "strike" is even more worrisome than the previous ones. Morena, one of the parties that formed the coalition of AMLO, proposed a reform to the Law of Petróleos Mexicanos, with the objective of retaking control and direction of this company under the criteria, basically, of López Obrador. In a simple way, the reform seeks to concentrate power on the figure of the director of Pemex, ignoring the current functioning of the Board of Directors, who is the one who makes the decisions and where all the sensitive issues pass.

By giving greater freedom to the director of Pemex, he could establish production guidelines and annual strategies of the company, would have the power to appoint and remove administrative and managerial positions and, more importantly, would have the power to incorporate the concept of sovereignty and energy security, which would lead to changes that the government considers necessary to safeguard the interests of Mexicans.

It is clear that the intention of Morena with this reform is to regain control of Pemex and ensure its production, as well as to ensure the interests of Mexicans. However, this leads to a state of global uncertainty and a context of centralization of power, where a bad decision would not have a counterweight and would end up sinking Pemex.

The future of the Mexican company is now more uncertain than it was when Fitch announced the change of its rating and it remains to be seen if the AMLO measures have the desired effect or will be one more chapter in the history of a poorly managed company overexploited throughout the past century.

LatinAmerican Post | Jorge Ovalle

Translated from "Las malas decisiones que han condenado a Pemex"