Economics: The impact of declining Pemex and CFE

MEXICO - Report 08 Mar 2021 by Mauricio González and Francisco González

Although Pemex and CFE reported worse results than expected for 2020, no one could really claim to be terribly shocked by the dire state of their income statements and balance sheets. It’s a tragedy that has been in the making for quite some time, but one that raises serious concerns about the future trajectory of both firms, the energy sector in general and the effect their weakening may increasingly have on public finance and the country’s productive apparatuses.

At this point, the trajectory of both state-owned energy companies provides a key vantage point from which to visualize the Mexican economy’s immediate and intermediate future, and needless to say the view is troubling.

Even as it continues to deplete its existing asset portfolios, Pemex keeps shifting away from deep water, but its efforts to make up for the yawning production shortfalls by more tightly focusing on a series of “priority” land and shallow water fields continue to be plagued by systematic delays, and it consistently falls short of exploration and production targets. And despite regular enthusiastic reports of progress achieved in rehabilitating the six facilities comprising Mexico’s National Refining System, the refineries continue to operate at less than 36% of capacity, and total petroleum products production skidded another 3.3% last year.

Late last month the Ministry of Finance announced it was granting Pemex yet another major injection of funds to help shore up the state oil firm's finances and crude output and promised that more aid would be forthcoming over the course of the year; plans also call for the federal government to take charge of upcoming Pemex debt amortizations. However, there is little hope that conditions will significantly improve. The trend remains one of not only scaling back investment plans but consistently failing to fully implement such expenditure budgets. As we show this week, the situation at the public electric power utility seems similarly dire.

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