LatinNews Regional Monitor: Mexico - 02 August 2018

Energy sector investment: On 29 July Mexico’s President-elect Andrés Manuel López Obrador announced that his incoming administration, due to take office on 1 December, will allocate an additional M$175bn (US$9.38bn) to shore up the national energy sector. López Obrador said that after analysing the national energy sector with his government transition team, it has decided to invest an additional M$75bn (US$4bn) in oil exploration and exploitation efforts in a bid to increase national crude production from 1.9m barrels per day to 2.5m barrels per day. The new government will also spend M$49bn (US$2.6bn) on the repair and upgrading of the country’s existing oil refineries, with the rest of the earmarked funds destined to other energy sector areas. The announcement came after Rocío Nahle, who has been named as Mexico’s future energy minister by López Obrador, told reporters on 25 July that the incoming government will invest approximately US$2bn to renovate the six oil refineries owned by the state-run oil company, Pemex, and build two new refineries. Nahle said that Pemex’s budget would not have to be increased to carry out these renovation works, because the government “is going to redirect” existing funds to this effect. According to official data, only two of Pemex’s six refineries are currently operating at full capacity with the other four limited due to various issues. However, the incoming administration’s proposed plans have come under criticism. In particular, critics have said that new refineries are unnecessary and will likely involve cost overruns. Moody’s Investor Service, the international ratings agency, has issued a note warning that these plans will generate financial risks for Pemex. The principal financial risk for Pemex, according to Moody’s, is that posed by the plans to build new oil refineries, given the likelihood of cost overruns which could require the company to take on debt, should Pemex be responsible for building the new refineries. Other risks highlighted include López Obrador’s suggestions that his government may control fuel prices which would increase uncertainty about whether Pemex can continue to take advantage of favourable international oil prices.

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