Mexico’s government on Wednesday announced plans to provide $ 4.2 billion in liquidity to struggling state-run energy firm Pemex, which has posted huge losses amid crumbling production and oil prices.
The finance ministry said Pemex will receive a capital injection of $ 1.5 billion this week as well as a credit facility of $ 2.7 billion to cover pension costs for this year.
The ministry said the aid, which seeks to “strengthen” the company’s finances, was conditioned on Pemex reducing its debts and liabilities by the same amount, $ 4.2 billion.
“This is a sort of rescue for Pemex at a very difficult time due to the drop in oil prices,” David Shields, director of the industry magazine Energia a Debate, told AFP.
“It (Other OTC: ITGL – news) ‘s good that the government has acted to remedy a sever liquidity problem.”
But he added that it was “unfair that public resources are being used to subsidize a group of workers with labor privileges.”
The announcement follows the company’s decision in February to cut $ 5.5 billion from its budget, in large part by delaying costly projects.
The ministry noted that Pemex, which provides one-fifth of the government’s revenue, has been “historically” fundamental to Mexico’s economy and public finances.
“However, the unfavorable economic conditions that the hydrocarbon sector is going through at the international level and the depletion of various (oil) fields have weakened Pemex’s financial situation,” it said in a statement.
– ‘Generous’ pensions –
The company has been hurt by a big drop in global crude prices and dwindling production, which has fallen steadily from a peak of 3.4 million barrels per day in 2004 to 2.27 million in 2015.
Pemex’s losses doubled in 2015 to $ 30.3 billion, though the company blamed much of it on higher taxes.
Pemex has also discovered in recent years thousands of illegal taps made by criminal organizations to steal fuel from its pipelines, costing the company $ 2 billion per year.
To cope with falling crude prices, the firm cut its budget last year by 11.5 percent and slashed 11,000 jobs by not filling posts vacated by retirees despite the powerful union’s resistance to workforce reductions.
No job cuts have been announced this year.
Shields said Pemex is paying “generous” pensions for people who retired in the past 20 years, with some getting as much as $ 10,300 per month.
The firm’s deepening troubles coincide with the end of its seven-decade monopoly over the energy sector.
President Enrique Pena Nieto enacted a reform in 2014 that opened the industry to foreign investors for the first time since 1938.
But the government believes that the reform can help Pemex by allowing the company to partner up with other firms in projects that would otherwise be too expensive.
Pena Nieto named a new Pemex director earlier this year with the mission of turning things around: Jose Antonio Gonzalez Anaya, a former deputy finance minister and head of the social security system.
