The Mexican government considers Pemex to be of strategic importance to Mexico, as it is a profitable public asset, in addition to being the country’s largest taxpayer, according to a World Trade Organization (WTO) report.
Consequently, the federal government considers it crucial to maintain profitability and ensure the company’s long-term sustainability.
To this end, the Ministry of Finance and Public Credit (SHCP) has given priority to solving the structural challenges faced by Pemex: high tax burden; high level of financial debt and its financial cost; and lack of resources to make the necessary investments to maintain the required production levels.
The government has set three main objectives to address these challenges: to reduce the profit sharing fee (DUC) from 54% to 40%; to reduce Pemex’s debt through equity contributions from the federal government; and to reduce Pemex’s refinancing risk.
In this context, in December 2021 Pemex announced a repurchase and liability management operation with the objectives of reducing the refinancing risk and the amount of debt.
The federal government would contribute 3.5 billion dollars to support this transaction.
In addition, according to the WTO, mechanisms and a financial structure will be implemented to allow the public sector to co-invest in exploration and extraction projects. Between 2017 and 2021, Pemex received no subsidies or transfers.
Pemex
Following the liberalization of hydrocarbons trade in 2013, the Hydrocarbons Law allowed Pemex to continue trading exclusively until December 31, 2017.
In accordance with the Law, in 2018 the National Hydrocarbons Commission (CNH) tendered and assigned the contract to trade natural gas to the Federal Electricity Commission (CFE) and the contract to trade crude oil to a foreign company.
The contract with the CFE was signed for one year and extended for another year; the crude oil contract was for three years.
In November 2020, when the contracts expired, the CNH directly awarded PEMEX the contract to commercialize the oil and gas. This contract is for five years.
Hydrocarbons
Although a certain level of competition in the hydrocarbons market has been allowed for the past eight years, Pemex still maintains a dominant position.
Pemex is the largest producer, importer and exporter of hydrocarbons and petroleum products, and also owns most of the infrastructure for transportation and storage. Pemex also owns all of the country’s refineries and controls sales to the public.
According to the Hydrocarbons Revenue Law, Pemex must pay monthly the hydrocarbons extraction fee, which is calculated based on the value of the product extracted, in a different manner depending on the product in question, and must also pay annually the shared profit fee.
The DUC is calculated by applying a 54% rate to the difference between the value of the hydrocarbons extracted and the deductions allowed by the Law, including what Pemex consumes, as well as the losses due to spillage or burning.
