Strategic Considerations:

The state-owned company’s debt to suppliers grew considerably last year as the oil giant increased its expenditures, despite the decline in oil prices due to the COVID pandemic. The health and economic crises made it harder for the company to get current on its payables, although that would be impossible without government support. While the company’s debt to providers is mainly allocated to its upstream business, Pemex’s debt with suppliers in the refinery business could also increase because of theconstruction of Dos Bocas.

  • Pemex’s debt with providers was USD 14.5bn, a 39.5% increase compared to YE2019
  • This figure was even higher than in 2015 when the oil crisis hit Pemex’s suppliers
  • Pemex deficit reached USD 5.55bn in 2020

Pemex debt to vendors reached historically high levels at YE2020, due to the company increasing expenditures while being hit by the COVID-19 crisis, said two sources close, industry sources, and energy experts. The debt was MXN 290bn (USD 14.5bn at today’s exchange rate) in late 2020, a 39.5% increase compared to 2019, according to the first source, who has access to figures Pemex reports to the Finance Ministry.

A Pemex source and an analyst said the state-owned oil company’s payables reached “historic levels,” although not precisely MXN 290bn. While most of Pemex vendor debts are linked to the upstream business, figures could also have risen due to an important increase in invoices from the refining business, linked to the construction of the Dos Bocas refinery, said two industry sources.

Those figures are even higher than the ones reported in 2015-2016 during the oil prices crisis when the company’s payables reached MXN 167.3bn, equivalent to MXN 195bn (USD 9.7bn) in 2020 due to inflation, said the first source.

Furthermore, in that period Pemex produced more oil at lower costs per barrel, and the losses at the refining unit were nowhere near as high as they are now, said the analyst. This makes it all the harder for Pemex to get current on its payables and impossible without government support, the analyst continued, adding the federal government might not be able to help out enough due to its own financial constraints.

Despite the record debt levels, Pemex’s vendors survived 2020 as the oil giant managed to make partial payments to the biggest providers and find other money sources from state-owned banks, said the consultant.

“Some vendors have simply slowed down activity as they see no rush to hurry up and finish the work under the contract if Pemex is delaying payments,” said Layla Vargas, CEO at energy consultancy Muvoil.

Pemex has also made it difficult to file invoices for completed work, so the company’s vendor debt could even be higher than reported, said the two industry sources.

A second analyst said payables have always existed, but investors care about them when it’s causing breakdowns among suppliers. The concern would be heightened, if cash levels are artificially high because Pemex isn’t recording invoices, the second analyst continued. Pemex has gone to pains to explain how they’re not behind on payables, but the market might not believe that, he added.

Vendors have searched for other revenue sources to face this delay in payments from Pemex, said the first industry source.

“Companies have factorized some of those invoices with state-owned banks,” said Vargas from Muvoil. Pemex also brought them to the table to renegotiate contracts to delay payments and reduce tariffs, Vargas and the first industry source added. The state-owned company has been hit by the plunge in oil prices during 2020, related to lower demand thanks to the COVID-19 pandemic.

According to a public finance report from Cuasar Capital, Pemex increased its spending by 7.1% in FY2020, and expenditures rose 5.1% in April-December when most oil companies cut costs because of COVID-19 and lower oil prices.

As reported, the government has supported Pemex extensively. According to the report, the 2020 relief initiatives were implemented so Pemex could avoid breaching its congressionally mandated debt ceiling. These include an MXN 46.2bn (USD 2.3bn) equity injection for Dos Bocas, a reduction in the shared utility tax rate (DUC in Spanish) from 65% to 58% equivalent to MXN 40bn (USD 2bn) in savings, the monetization of MXN 96.5bn (USD 4.75m) in promissory notes related to pension payments that were due in the next 15 years, and an MXN 31.2bn (USD 1.56bn) interest payment related to the promissory notes, which hasn’t been cleared up by either party, the report said.

The result is that Pemex’s financial deficit in 2020 was MXN 111bn (USD 5.55bn), artificially lowered by the equity injection and the USD 1.56bn payment. Otherwise, the financial deficit would have reached MXN 188b.4bn (USD 9.4bn), the report concluded.

by Edgar Sigler and Xochitl Herrera, Mexico City