Mexican President Andres Manuel Lopez Obrador on Friday announced a US$3.9 billion bailout for the country’s cash-strapped, state-owned oil company and promised it an additional US$1.6 billion in revenue, making it a rescue package of up to US$5.5 billion.
Lopez Obrador has made rescuing Petroleos Mexicanos, or Pemex, a centerpiece of his first 100 days in office, launching an offensive against fuel theft gangs that drill illegal taps into Pemex pipelines.
The extra revenue is expected to come from increased sales for the company as sources of stolen fuel dry up.
The government package includes assuming pension debt, injecting cash and cutting taxes for the company, but the assistance plan is tiny in comparison to the staggering US$43.8 billion in debt the company has incurred since 2013.
Lopez Obrador sees the company, which was nationalized in 1938 by his hero, former Mexican president Lazaro Cardenas, as a national symbol and engine for the economy.
“In Pemex there has been bad management and a lot of corruption, looting,” Lopez Obrador said. “If we end the corruption, Pemex will be reborn and that will apply to the country, as well.”
Last month, the Fitch ratings agency lowered the company’s credit rating one step to “AA,” with a negative outlook.
Pemex is essentially insolvent, with negative cash flow and a debt exceeding the value of proven oil reserves, Fitch says.
The bailout “would likely not be enough to prevent continued deterioration in company’s credit quality,” Fitch said on Friday.
“The announced support measures are less than the US$12 billion to US$17 billion of additional annual cash requirements Fitch estimates Pemex needs to halt production and reserve level declines,” the company said.
Lopez Obrador has said that his goal is to raise crude output 45 percent by 2025 to 2.4 million barrels per day, from 1.65 million barrels per day at present.
Many pro-market critics in Mexico question the wisdom of sinking so much government money into the cumbersome giant.
“They are now saying it can’t be done, that Pemex’s debt is too big, that it is going to be impossible to rescue Pemex,” Lopez Obrador said. “I accept the challenge. We are going to get Pemex back on its feet and it is going to be a productive company, a profitable one.”
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