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Mexico will reduce the tax burden of heavily indebted Pemex by some USD $7 billion over the next two years and inject government resources to build a new refinery and raise output from onshore and shallow-water fields, the company announced on Tuesday.
Presenting the outline of a business plan watched closely by investors, Pemex Chief Executive Octavio Romero said a heavy profit-sharing tax that hands much of the company’s income to the federal government made the company financially unstable.
Romero reiterated that the tax will be reduced 11 percentage points to 54% by 2021. The company has previously said that reduction would save the company USD $7.1 billion in 2020 and 2021.
Nevertheless, the outline of the plan failed to excite markets, and Mexico’s peso weakened slightly against the dollar during the presentation.
Pemex is the world’s most indebted company, and its credit was downgraded to junk by Fitch this year. Moody’s and S&P have the company on negative outwatch.
Furthermore, the government’s plan to build a new USD $8 billion refinery at Dos Bocas is high on ratings agencies’ list of concerns. Former Finance Minister Carlos Urzúa cited his opposition to the refinery after he resigned last week, saying experts believed it would cost far more.
A more detailed, 200-page version of the plan will be unveiled later today, Romero said.
Focusing on easy access onshore and shallow-water fields, Romero vowed to raise Pemex production within three years and to reach 2.7 million barrels per day (bpd) of oil by the end of President López Obrador's government in 2024, from the current production of 1.8 million barrels a day.
Sticking to the federal government’s position, Romero said it made more sense to invest in these fields to rapidly increase output, rather than the deepwater area of the Gulf of Mexico which the last government wanted to tap.