Pemex capital boost considered insufficient

The recently announced capital injection for Mexico's state oil firm Pemex is seen as insufficient, given the limits on tax deduction imposed on the company in comparison with its competitors in the newly opened oil and gas sector, according to analysts quoted by local media.

The finance ministry announced on Wednesday (Apr 13) that Pemex would receive a US$4.2bn capital boost as the company's revenues suffer from continued low oil prices, and a loosening of its tax regime. The announcement comes in the wake of a US$5.5bn cut to the NOC's 2016 budget, announced at the beginning of the year.

The capital boost is "a patch" and does not guarantee the company's financial viability or offer medium-term development alternatives, Abraham Vergara Contreras, an academic at the Universidad Iberoamericana's business studies faculty, was quoted by daily Publimetro as saying.

"If efficient measures are not implemented to control debt, management of resources and productive investment, the government will continue to patch up Pemex's finances, because all it's doing is applying short-term measures," he said.

Analysts say the cash boost is insufficient given that oil companies awarded contracts in Round One, for offshore and onshore E&P, can recover their costs through tax deductions, while Pemex's deductions are limited.

Pemex could recover up to 25% of its costs, whereas local firm Sierra Oil & Gas and Argentina's E&P Hidrocarburos could recoup up to 60%, analysts quoted by El Financiero newspaper said.

Prior to Mexico's energy reform, Pemex had a stricter tax regime, but this has been made more flexible with the aim of increasing the company's revenues.

While the cash injection increases the amount the NOC can deduce from taxes, the amount deductible should be greater to allow the company to compete, according to Enrique Cárdenas, director of the Espinosa Yglesias center of studies.

"If the new tax regime is not competitive compared with other markets, it was not worth modifying it," he was quoted by the paper as saying.

Pemex CEO José Antonio González said the agreement with the finance ministry only allows the company to return to its former tax regime, as the new regime was created based on high oil prices, according to the newspaper.

While the capital injection is positive, it does not alleviate Pemex's credit risks, according to Moody's, newspaper El Universal reported.

Earlier this month the ratings agency downgraded Pemex's long-term national scale and global scale ratings to 'Baa3/Aa3.mx' from 'Baa1/aaa.mx', prompted by an expectation that the company's current weak credit metrics will worsen as it continues to fund capital expenditure with external sources.

The move followed Moody's downgrading Pemex's baseline credit assessment last November.