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  HOME | Mexico

Mexican Government Plans Big Investment, Cut in Tax Rate to Bolster Pemex

MEXICO CITY – The federal government presented a new business plan for Petroleos Mexicanos (Pemex) on Tuesday that calls for an 11 percent cut in the state-owned company’s tax rate and huge investments to bolster the energy giant, which has been plagued by a decline in oil production and refining, and has a debt-laden balance sheet.

“The company is dealing with three structural problems – a high tax rate, debt and low investment. This trapped Pemex in a vicious cycle,” Pemex CEO Octavio Romero said.

Romero discussed the 2019-2023 Business Plan, which was approved by the Pemex board of directors on Monday.

Pemex’s board includes representatives of the Finance Secretariat, Economy Secretariat, Energy Secretariat, Environment and Natural Resources Secretariat and independent directors, Romero said.

“The plan outlines a new strategic vision for the company. In both the energy and economic areas,” the Pemex CEO said.

Romero noted that Pemex’s oil production dropped from 3.37 million barrels per day (bpd) to 1.82 million bpd over the past 14 years.

In the refining area, the Pemex CEO said, “limited maintenance” and investment caused refining volume to drop from 1.29 million bpd in 2012 to 507,000 bpd today.

This situation, combined with a high tax burden, caused Pemex’s debt to balloon to 2.1 trillion pesos (about $110.7 billion).

Romero said the new business strategy was aimed at turning around the struggling oil company.

As a first step, Romero said the government approved a lower royalty rate, putting 30 billion pesos (some $1.58 billion) into the company’s coffers.

Starting in 2020, Pemex’s “elevated” tax burden would be reduced under a proposal included in the Hydrocarbons Revenue Law, Romero said.

The state-owned company’s tax rate would drop from 65 percent to 58 percent in 2020, and to 54 percent the following year if the proposal goes through.

The federal government also plans to increase Pemex’s capital investment appropriations, the CEO said, adding that the funds would be used to a large extent to build the Dos Bocas refinery in the southeastern state of Tabasco.

In 2020, for example, Pemex will have a capital investment budget of 347 billion pesos (about $18.29 billion).

Some 66 billion pesos (about $3.48 billion) will come from federal government appropriations, while 45 billion pesos (some $2.37 billion) will be generated by the lower tax rate.

Pemex is also projected to generate some 14 billion pesos (about $734 million) from private investors under the CSIEEs program.

“All of the above will allow Pemex to have the resources to invest in petroleum production and in recovering refinery capacity,” Romero said.

The government will be assisting the state-owned oil company during the first three years of the current administration so that “in the second half (of President Andres Manuel Lopez Obrador’s six-year term), Pemex will be the one supporting the federal government, financing development,” Romero said.


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