Pemex, ¿hasta dónde debe sostenerlo el gobierno?

"Educación Financiera BBVA" presents "Peras y Manzanas" with Valeria Mui. "El podcast, donde la economía cuenta". "Transferencia" with Valeria Mui. Hello, welcome to "Peras y Manzanas". I know I'm sorry, but we have to talk about Pemex again. Why do we have to talk about Pemex again? Well, because it's not just a very important oil company in Mexico, but maybe the biggest company in Mexico, the biggest state company in Mexico, and it costs us or gives us. Because so far, I see that in what this administration is going to do, but we could add to it in the long run, 1.73 billion pesos have been given, that is, millions of millions, in support, among other things, and what does this mean? These supports are direct transfers from one bag to another, but they have also been condemned by taxes, or by lowering the rate, or by lowering the utility rights. In other words, they have made some financial adjustments, in such a way that this big company, one of the most indebted in the world, if not the most. And well, as the financial states of this company recently came out, we suddenly see a lot of information, and we don't know exactly what is relevant. And what do I mean by this? Is Pemex going well? Is he going better than before? Has he always gone wrong? Has he always lost money? Or has he actually won and is currently winning less? How are the oil companies going in the world? What are the relevant data? Because I remember, and this does some yesterdays, that when we were studying at school, they told us that the oil was ours. And well, I don't know if it's actually costing us, and then that's our debt, or the oil is ours. And then I listen to some data, of how well Pemex is doing, and that debt has been reduced, and that there really is no problem, because now that the year is coming, and that it has to be refinanced, because there is a very important payment for debt in the following years, and that there will be no problem, that there is no refinance, nothing happens. And now I only think of refinancing the rates in which they are. But well, as there are many data and navigation between the financial states of any company, but Pemex in particular, they gave me an answer. Today it is with us, Alexis Milo, again with my great economist, my economist friend and founder of Teleconomics. Alexis, welcome. Valeria, thank you very much for the invitation. Tell us about Pemex. What do we have to see? What is relevant? What is not relevant? What data, of these millions of data that come out and that everyone comments about Pemex, what can we almost, almost throw in the trash and what do we have to fix? It's good that you start with that question, because you are right. Pemex is one of those topics that we like, of those that everyone talks about, but that many times we do not understand. We both have an opinion about Pemex, but understanding it is very complicated. Yes, and I think that sometimes we look a lot at things that may not be so relevant and we do not look at others that are. In that sense, Pemex is a big topic for the Mexican economy, because I would also tell you, in addition to what you already said, Pemex is potentially the pillar of Achilles of public finances in Mexico, right? So, what is the history of Pemex in a second and what do we have to look at? Look, Pemex is the final of the day, it is a oil company. And as a oil company, it has two productive activities. Crude oil, extracts it and sells it. And on the other hand, it refines oil and converts it into gasoline. What has happened with these two activities? The production of oil has fallen tremendously. In the last, let's say, 20 years, it has gone from 3.5 million barrels to more or less 1.6 million. And why is that, Alexis? Because there is no more or because we are not extracting it? Look, Mexico has never really been a oil country, yes? We were lucky in Mexico that we found a great achievement that is still called Cantarelli, which became a oil country for us. But it was a jazzy. What happens is that jazzy got exhausted. Pemex does not continue to invest in developing new jazzy that are surely there in the Gulf of Mexico, especially. And then, the only jazzy that we found almost by accident, a fisherman who was walking there and saw that there was oil in the sea, his name was Cantarelli, that fisherman. And that's why it's called that way. So, Cantarelli was a historical accident. Yes, it became or oilized the public finances of our country. So, it has fallen. Why? Because it is being exhausted and Pemex does not have the money to continue investing and getting more. And the law, even before the energy reform of 2013, did not allow it to be associated with private companies that do have the technology, that do have the way to extract oil in an effective, competitive way. So, the production has fallen. And on the other hand, Pemex is tremendously inefficient in refining fuel. So, it loses money in refining. So, that's the idea. Pemex is a company where it produces less and less at a higher cost. So, what do we have to look at? We have to look at how oil production comes about. What else is falling? How are the international prices of oil? And also, how much money is Pemex losing for refining? I would tell you, that offers us a first diagnosis of how bad Pemex comes in terms of its production and its structure. -And how bad Pemex comes? -Pemex comes very bad. It comes very bad. Now, what is the real problem? That Pemex has a very generous owner called the government. He tells him, unlike any other private company, he tells him, "Don't worry. "You lose the money you want, "when you miss it, I'll give you the money." The relationship between the government and Pemex is very interesting, because it has also changed over the years. But basically, it has been a relationship where you have a business that loses money, but it's a business that you can get more money from. How? You owe it to that business. So, the government gives you money, and that business is still being owed. That's why Pemex has become the most... The oil company was the most owed in the world. A debt that came at the beginning of this year to more than $120 billion. So, it's a very perverse game. Because imagine that you have a business that can be owed, it's not profitable, it's not efficient, but you can get the money you want, and that's how you go forever. The relationship gets a little more complicated, because what the investors say is, "Okay, "but this debt of Pemex, "I know Pemex is giving you money, "but this debt of Pemex is due to you "or the company's debt, "and the government has always played with it "as we like and as we say in El Pueblo at the ensarapado. "Well, I'm not saying yes or no. -So... -That one hadn't heard of it. -That one, Alexis, hasn't heard of it. -That's a classic one. So, the government doesn't clarify. And that's why we've played all these years with the fact that if it's a debt of debt, if the government is liable, if it's not liable, etc. The truth, Valeria, is that Pemex will never fail its debt. It will never be a default, as it says financially. Because, say what the government says, the relationship is so close to the government and Pemex, that it would look like a kind of non-payment of the sovereign, that is, of the government. It would look like a government default. And what it would do is that investors would say, "Wait, even if Pemex doesn't have an explicit guarantee "of the government, it's yours." And it's a central, fundamental, medullary part of your finances. So, the fact that Pemex is breaking and you let her pay, let her break, means that maybe you really don't pay me, right? So, the problem is that it would contaminate the rest of the public finances, right? So, a little bit to hide all this garbage under the carpet. What the government has said is, let's see, Pemex doesn't have an explicit guarantee, but the government backs Pemex. That's why you've seen that the government, as you mentioned at the beginning, has been giving her transferences. Some give her money for a few years, others give her taxes for a few years. All of that, during this administration, just adds up to the figure that you mentioned of over 100,000 million dollars. Yes. Now, the truth is that... The truth is that this relationship can go on for longer. That's the problem. The real problem is that it's a company that keeps losing money, but at the same time, investors say, to give you an idea, Pemex pays 5% more in dollars than the Mexican debt. So, you're all happy. Pemex has this debt that pays for money. Investors make themselves a little bit of a fat view before this big performance. The government can go ahead with Pemex. What's the problem? Where is this going to end? I believe that the government will never let Pemex fail. I think that's the big problem. The bad news is that Pemex hasn't really had a crisis. Pemex is very bad, but it hasn't had a crisis. But how do you see a crisis? When you're talking about these Montos, Alexis, when we're talking about 100,000 million dollars in debt, more than 100,000 million dollars in debt, when we're talking about a company that keeps losing money, but at the same time paying high interest rates, and then investors are delighted. And of course, I see that every time there is a Pemex bonus, they end up fighting them. And Pemex then publishes it as great news. Everyone wants our bonuses. I don't know if that's great news or it's a very delicate topic for public finances. So, if you say Pemex hasn't had a crisis, and it's fine, I understand it's a bit like the Rana phenomenon that's burning in La Oya, and we don't know until it's dead. But how do you see a crisis in Pemex? Because I feel that Pemex crisis would be like a 94 reloaded, right? Yes, yes, and look, how do you think it would be a crisis that would also be healthy? -Oh. -No, let's see. Because we're not talking about a macroeconomic problem like the one we had when we were kids, like the 94 and all this. No, no, how would a crisis look like? A crisis would look like when the markets really said, "You know what, government? "This is that you spend money on Pemex "and that you spend sweeping the garbage under the carpet "so that it doesn't look like it. "And you're all happy where Pemex is still losing money "and you're willing to cover those losses of Pemex. "I don't like that little game anymore. "So you know what? I'm going to lend you more. "I'm going to lend you not 9% or 8% that I lend you right now." I mean, I'm talking about pesos there, but it would be equivalent to dollars. I'm not going to lend you 6%, 7% in dollars. I'm going to lend you 10%, I'm going to lend you 11%. Because I know you have a business that you're not willing to reform, let's say, to be more efficient. You're not willing to make a fund reform in Pemex. You're still absorbing those losses. At some point, you're going to have to face other things of spending, in health, in education, everything you've mentioned many times, that we'll bring a strong mess. I know that at some point you're going to have to spend on that. And I know that your Pemex, with sense, you're never going to put it on the line. So you're going to have to pay me a much higher fee because I'm already tired of this game. That's the crisis that, at some point in time, would make the government make a decision that I don't think would let Pemex break. It would be a decision to say, you know what, now we do have to make a fund reform in Pemex. What is a fund reform in Pemex? Look, Pemex, for example, has three times the number of workers that it should have. A company that produces what Pemex produces in the private and international sector has a third part of Pemex's employees. Pemex has an important part of their contracts, they're assigned by the syndicate. These are the Wachikol issues, which is obviously an important meme in Pemex's finances. They're also, let's say... Let me give you an example. Why does Pemex have to give health services to their employees? Pemex is like any company, right? Your company has hospitals, doesn't it? It has hospitals, it has doctors, doesn't it? What the company does is it tells you, "Hey, Valeria, I'll pay you a medical insurance, and with your insurance you'll go to the hospital and the doctor will take care of you, etc." Why do you assume that a oil company is a oil company? Why? Exactly, because it has hospitals, more or less Pemex. Pemex's health service has 800, 900,000 people. So, when you add up all these things, you find yourself with a tremendously inefficient company. So, that's why I think it's not so bad that sometimes the market puts some substance to the government and says, "This issue of Pemex, at some point, you're going to have to address it in depth." Pemex doesn't have to address it in depth. Pemex has a big problem with amortizations, for example, which is what many financiers worry about. Pemex has a very complicated thought in the short term, and that's what many people worry about, and that's what the problem is. Now, that's not so much of a problem in itself. Why? Because the government says, "Pemex, how much do you owe this year?" "No, well, so many billions of dollars." Okay, I'm emitting it here. It's cheaper because the market still makes me aware that my son is still living in the house for 35 years. The market isn't penalizing him, so I'm emitting debt. I'm going to give you the millions of dollars you need, and we're going to give it in advance, and you'll all be happy, okay? So, the idea is that the market tells the government, "Hey, until you send your son to work, I'm not going to lend you money." And if the government says, "I have to make a reform in Pemex." Because if I don't make that reform in Pemex, I won't be able to spend it in health, in education, in my social programs. That is to say, making politicians say, "It's politically very expensive for me to continue keeping Pemex because I can't give basic services to the population." That's the crisis, which I think wouldn't be the worst thing we could do. Because this permissiveness of the market we've seen, with the weight, with the dollar, at 1680, 1690, even though the deficit is high, even though Pemex isn't remedied, I think that the only thing that allows us is to continue giving the vote. So, I think the problem is that the water, I mean, the blood hasn't reached the river. And since we're in Mexico, many times, until the child isn't born, we don't cover the well, right? We don't have to wait until the child is born. But I think it's a topic that will have to be addressed very soon. Right there, I want to ask you. Because we're in electoral times, and within very few weeks is the election. And suddenly, I hear the candidates talking about Pemex, right? And there are people who say, "No, yes, it can be solved very easily." There are people who say, "It's the company that we have to keep as it is." There are people who say, "I'm going to transform it into Mexican energies." So, I'm going to allow them to do many more things. Yesterday I heard, even now that Pemex extracts lithium, everything is going to be fixed, I said, "What? I didn't understand anything." But well, at the end of the day, what I want to ask you is, who will remediate Pemex? Or are we going to leave it? Because that's the solution you say, Alexis, of the market. You and I know that it's not going to happen. I mean, it's not going to happen because the market is not an agent. The market is thousands of people, right? So, there won't be that coordination. I mean, I think that, yes, I understand your point, but unless there are other kinds of economic signs in the country, the market won't make a decision about that. And that's why the question is, does Pemex have the means? We are going to assume that there is no crisis of another kind that would lead to a crisis in Pemex. And that whoever reaches the government says, "Well, let's do this. We're going to fix this mess." -Do you have a remedy? -I think so, look. Pemex is a company that can extract relatively cheap oil in certain fields. The energy reform, which fortunately hasn't been dismissed, allows us to collaborate with private companies. And I know it's not about being delitamized and that we like everything private, because yes, it's because private companies have the technology, the know-how, as it is said, that is, they have the way to extract oil that is increasingly inaccessible in the Gulf of Mexico. It's not just about giving it to private companies to give it to them. It's because if they don't do it, Pemex can't do it unless it's together with private companies. So, yes, it has a remedy. And then, in addition, to tell Pemex, "Hey, we have to reform this. We can't continue as before." Look, I think the last administration brought a slow but adequate focus. The last administration, what it was doing is leaving Pemex its most productive fields. Opening other fields, inviting private companies to produce there. And on the other hand, the areas of Pemex, as it couldn't close Pemex, Pemex can't be closed. Pemex can't be sold. We all know that it can't be. So, what they were doing was, "Hey, if you can't get rid of a problem, at least you can keep it and make it smaller with time." So, for example, that's why they didn't invest in refining. And there came a time when the third or third or fourth parts of the gasoline we consumed in Mexico were imported. The president said, "They left us a refining sector in ruins." Well, that was the idea. The idea was not to invest in what you know is not good and that the world goes beyond that type of technology. As a country, what was most convenient in the short term was import gasoline to the United States. Yes, there are issues of energy sovereignty and energy security. -I don't think it's... -It's solved with storage. But it's solved in some way. In the United States, the United States produces 8 million daily barrels and it has a capacity to refine 18. It has an excess of brutal refining capacity. So, the administration went through a bit. This is questionable, but I think Pemex was saying, "Pemex concentrates on what is more or less good, on what is good, but it can't be done alone, that it develops it together with private companies, in the parts where it loses money, we can't close them one day for another, but we can do it smaller." And I think that eventually would lead us to Pemex, yes, with inefficiencies, but much more concentrated on what it can do. I think that the administration that comes will have to do something similar. It will have to say, "Let's revive the reform, Pemex stay with your fields that are productive, where you can produce a good amount at a low cost, let's open things up again with the private sector, and let's start removing things that Pemex cost a lot of money, like what we mentioned about the health issue, really, for example, Pemex has a system of social security that is extremely generous, I don't know if that has changed, but the Pemex Collective Contract can say that you could have three wives at the same time. -That's not true. -Yes. -That's not true, Alexis. -That's a good question. -I'm going to finish this conversation. -I don't know. -I'm going to finish this conversation. -But it must be correct. -Incredible. -Incredible. So imagine what that costs us as a country. It's what it costs us as a country. So it's really things that Pemex will have to eliminate. I think it helps that Pemex's syndicate is a syndicate much less armed than it was in the past. I do think it has a solution. I think everything has a solution. And Pemex has it, right? Who would say you're that optimistic Alexis? I didn't know that phase of your personality, but I like to close with this positive note that it does have a solution. I like to see it, I hope it does have it, and I hope it makes decisions, because if it doesn't pressure the public finances and the economy of Mexico, not only the public finances, it won't be more than growing. It requires a lot of political will. A lot of political will, and a lot of political capital. But that's the part that's hard to visualize. -You're right. -It looks complicated. But Alexis, thank you very much, as always, for being in Peras y Manzanas. We'll be right back. -You're welcome, Valeria. -Thanks. <i>Educación Financiera BBVA</i> <i>presentó.</i> <i>Peras y Manzanas</i> <i>with Valeria Moy.</i> <i>El podcast</i> <i>donde la economía cuenta.</i> <i>Escucha este</i> <i>y todos nuestros podcasts</i> <i>en así como suena.</i> <i>.mx,</i> <i>spotify Google</i> <i>y Apple Podcast.</i>