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Mexico’s message to credit agencies: Evaluate Pemex responsibly

by sanmigueltimes
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MEXICO CITY, May 10 (Reuters) – Credit ratings agencies must be “responsible and serious” in how they evaluate Mexican state oil company Pemex, Energy Minister Rocio Nahle told Reuters on Friday, strongly defending spending and policy decisions that she says will benefit the firm.

President Andres Manuel Lopez Obrador has pledged to revive the ailing Mexican oil giant, which is the world’s most indebted oil company, by boosting crude output and revamping its refining business.

Ratings agencies including Fitch and Moody’s have warned that the firm faces major financial challenges, as they question the government’s decision to spend heavily on the construction of a new refinery and its ability to significantly boost production.

Nahle, a former congresswoman who also serves as chair of the Pemex board, pushed back on any adverse decisions that the agencies might be considering about the company’s credit.

“The credit agencies should be very responsible and serious,” Nahle said in an interview, referring to their upcoming Pemex evaluations, adding that they should not pursue a political agenda.

“If Pemex wasn’t complying with its (debt) payments, if it wasn’t complying with its investment goals, if there weren’t all these efforts that the government is making, then it would make sense. But it doesn’t make sense,” she said.

CIUDAD DEL CARMEN, CAMPECHE. 16 de Febrero de 2007.- El activo Ku-Maloob-Zaap est‡ a aproximadamente a 105 kil—metros al noroeste de esta ciudad, frente a los estados de Tabasco y Campeche, y para su desarrollo la Regi—n Marina Noroeste de PEMEX Exploraci—n y Producci—n contempla perforaci—n 82 pozos, instalar 17 plataformas y construir 32 ductos. FOTO: PEMEX/CUARTOSCURO.COM

Earlier this year ratings agencies downgraded Pemex, stating the company’s financial position will deteriorate if its tax bill remains high, which they argue harms its ability to reverse a 14-year crude production slump.

While Petroleos Mexicanos, as Pemex is formally known, has never defaulted on its debt, a potential downgrade could cause its financing costs to spike and inflict damage on the broader economy.

Nahle, a petrochemical engineer by trade, charged previous Mexican administrations of irresponsibly allowing Pemex’s debt to balloon from some $13 billion in 2000 to over $106 billion by the time Lopez Obrador took office late last year.

“During all that time we never saw the ratings agencies act so nervously,” she said.

Nahle said she has met with representatives from the ratings agencies, as have Pemex officials, and that the Finance Ministry will announce plans to lower the company’s tax obligations as well as provide additional revenue that will come from a new round of budget cuts announced last week.

She declined to say when those announcements will be made, or provide details.

On Thursday, Lopez Obrador announced that Pemex will oversee construction of the new $8 billion Dos Bocas refinery, dismissing bids from private sector builders as too costly and charging that they were unable to meet his three-year timeline.

Nahle noted that Pemex’s Cadereyta and Salina Cruz refineries were both constructed within three or four years in the 1970s.

Critics of Lopez Obrador’s plans have claimed that the new refinery, which would be Pemex’s seventh, will divert resources away from the company’s more profitable exploration and production business and that the president should embrace partnerships with private oil companies as a means of luring additional investment.

Nahle said Pemex officials are still considering whether to allow auctions set for October to pick joint venture partners for the company in seven onshore areas. She said the company will likely make a decision in June. (Reporting by David Alire Garcia and Ana Isabel Martinez Editing by Daniel Flynn, Chizu Nomiyama and Leslie Adler).

By David Alire Garcia and Ana Isabel Martinez / Reuters / May 10, 2019

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