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PEMEX: Government approach does not offer guarantees of recovery

After being subject to years of mismanagement, getting Pemex back in shape is essential for the Mexican government. The incumbent government has invested much political capital into getting rid of deep-rooted corruption within the oil company, which drained monetary resources in the past and was the main cause of bad decision-making by the Pemex management, too. Furthermore, the government has announced the construction of an $8bn oil refinery in Tabasco at the same time it suspended the construction of a new Mexico City airport until further notice earlier this year. The decision suggests the government intends to allocate all resources available on Pemex.

However, the oil company is in critical condition and it will take more than a new refinery to turn it into the main driver of future economic growth for the Latin American country. Pemex ranks first in holding the largest debt among oil companies in the world. The company is more than $100bn in the red. Additionally, it has been suffering falling production for ten years in a row, during which time the company has gone from over three million barrels per day to the current 1.9 million. Under these circumstances, it seems like the company will not meet its self-imposed production target, which the new business plan has optimistically set for the next four years.

With the ambition to have the state-run company free from foreign influence, the Mexican government has restricted access to the oil market to companies from the private sector, arguing that recovering sovereignty for Pemex will lead to sovereignty for Mexican economy as a whole. Although given the current state of the Mexican national finances, and the need of investment for Pemex to get back on track, this indicates that current approach is likely to fail.