With a government focused on oil and the recovery in oil prices, some observers anticipate that there could be windfall revenues that will push the Mexican economy forward. Sadly, that is not the case, since governments in turn –and President Andrés Manuel López Obrador’s government is not the exception– usually find other priorities, mostly political and unproductive in nature, for such revenues. In fact, indirectly via the national Treasury, this year they will largely be “burned” to subsidize the price of gasoline for consumers.
For many years now, whenever oil prices go up, they do not translate into benefits for the Mexican economy. More money comes into the country from oil exports, but more leaves the country in order to import gasoline. These imports usually eat up about 70 percent of oil export revenues.
So far this year, thanks to the global economic recovery and the OPEP+ cartel’s output cuts, Mexican crude oil exports have averaged more than US $60 per barrel and their current price is US $71, which contrasts with a budgeted price of US $42 dollars. But the amount exported is 20 percent below the 1.2 million barrels per day which were budgeted. If price and export volumes remain at their current level in the second semester, windfall revenues for the year will amount to about US $6 billion.
This unbudgeted income will go, above all, to subsidizing fuel prices to consumers, compensating for lower fiscal revenues from the excise tax, known as IEPS, on gasoline. This subsidy (or “fiscal stimulus” as it is called) is now close to MXN $3 per liter and its only purpose is to maintain a stable price for consumers at the gas pump.
That being the case, there will be no windfall revenues for other economic priorities, starting with the so-called “rescue” of state-run oil firm Petróleos Mexicanos (Pemex). Indeed, it is not known where the money will come from to rescue Pemex nor that there exists any kind of clear strategy for doing it. Given the size of Pemex’s financial and labor liabilities (which amount to about US $180 billion in all), the rescue job will be difficult and expensive.
If the strategy is limited to covering operating losses and short-term debt obligations, this would imply devoting 3 percent of Mexico’s GDP to the rescue job in the coming years. But it is implicit that the federal government would not assume even part of Pemex’s liabilities and that investment levels in oilfields would remain restricted. (They stand at about half the amount that used to be spent on this). Also, outlays on the Dos Bocas and Deer Park refinery projects are not considered.
It is perceived that the vast outlays on these two projects will be much greater than any economic benefit, worsening Pemex’s financial situation even more. The cost of moving towards supposed self-sufficiency in fuels, as set out in current Mexican government policy, will be extremely high and unjustifiable if the world now moves towards electric mobility.
An aggressive policy of rescue and improvement at Pemex, with a moderate increase in crude oil output and profound changes in operations and in the company’s structure, would probably imply spending at least 12 percent of GDP (without accounting for Deer Park and Dos Bocas), which is hardly feasible or justifiable. Obviously, this cannot be done with windfall revenues.
This is a grave systemic risk to the country. It would be necessary to apply the right reforms to give economic viability to Pemex and allow it to re-invent itself using its own resources, re-orienting and rationalizing its activities, and giving priority to productive alliances and to sustainability –to reducing polluting–, as other large oil companies already do.
But the López Obrador government shows no interest in this. The only thing it tries to do is to kick the can, without any kind of rescue at all. Its patriotic discourse is neither visionary nor modern. Real solutions will only come forward when correct financial and technical re-engineering takes the place of ideology and prejudice.
* David Shields is an energy industry analyst. His e-mail: david.shields@energiaadebate.com A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition.
