Pemex fiscal change cut from budget discussion

A new tax regime for Mexico's national oil company Pemex has been nixed from discussion of 2014 budget reform as legislators look to make substantial changes to the proposal submitted by President Enrique Peña Nieto last month. José Isabel Trejo, head of the budget committee in Mexico's lower house of congress, said the group has decided to postpone the discussion of Pemex's tax regime and omit it from the 2014 fiscal plan, according to local outlet Crónica. Although Peña Nieto's budget proposal did propose a reduction in tax rates and budget autonomy for the state-owned oil giant, the changes would not have been implemented until the 2015 fiscal year. In 2012, taxes and royalties levied on Pemex were equal to 106% of the firm's operating income. The news comes after Manilo Fabio Beltrones, coordinator of Peña Nieto's PRI party in the lower house, announced his party had reached an agreement with the right-wing PAN and left-wing PRD to make as many as 25 changes to the president's budget proposal. Legislators have been particularly opposed to the president's plan to impose value-added taxes on tuition and mortgages. PEÑA NIETO'S PLAN According to the latest legal update from Houston-based law firm Mayer Brown, Peña Nieto's proposal would reduce government dependence on oil revenues but it would "not happen overnight." The plan proposed a new hydrocarbons revenue law establishing a "state dividend" to be levied on Pemex every year. After the Pemex board of directors delivered its annual financial report, the executive would propose a dividend to be paid by Pemex to the state, pending approval by congress. Anything left over after payment of the dividend could be reinvested by Pemex. The proposal set benchmarks for decreasing the state dividend over time, to 30% of Pemex's earnings after taxes in 2016, 15% in 2021 and 0% in 2030. Mayer Brown also suggests the fiscal proposal would incentivize Pemex to produce more oil with, for example, a new surface fee to be charged to Pemex on non-producing hydrocarbons areas. The plan also established a structure for profit-sharing agreements in E&P, which would be administered by a hydrocarbons trust within energy ministry Sener. However, the plan did not detail the tax regime for privates engaging in profit-sharing agreements with the Mexican state. With the latest news from congress, it appears these changes will not be contemplated this year.