Pemex this week unveiled several measures aimed at strengthening the Mexican state-led company.

They include a reworked $8 billion loan with JP Morgan, HSBC and Mizuho Securities and others, as well as fiscal regime adjustments designed to lighten the company’s historically heavy tax burden.

However, observers were not optimistic about the effects of these measures especially after president Andres Manuel Lopez Obrador said Pemex would build a proposed refinery on its own and throw out bids from private sector companies for the project after they came in above the company’s $8 billion budget.

“Pemex confirms its commitment to responsibility in the management of debt, based on an exercise of fiscal discipline and absolute transparency in execution, with the objective of recovering the energy sovereignty of the country,” Pemex chief executive Octavio Romero said.

According to Pemex, the new agreement between it and three financial institutions will allow the company to refinance debt of up to $2.5 billion and the renewal of two existing revolving credit lines for a total amount of $5.5 billion, with a term through to the end of 2019 or early 2020.

The government also issued a presidential decree that will increase Pemex’s fiscal incentive for 2019, reducing the share the company will have to pay to the state on certain contracts, expected to yield a reduction of 30 billion pesos for this year.

“This reduction of the fiscal burden will free up resources that can be used for Pemex to invest in exploration and production, as well as improve its fiscal status,” Pemex said.

The decree will allow Pemex to migrate fields with output of less than 400,000 barrels per day from an assignment model to new contracts debuted after the energy reforms, similar terms to those enjoyed by private companies, according to the Eurasia Group.

The Lopez Obrador administration has pushed to make Pemex more the focus of energy development in the country in a move away from the strategy of predecessor Enrique Pena Nieto, whose administration had encouraged participation of private companies.

It has also targeted a range of fields to be fast-tracked to production with the goal of offsetting long-falling crude output.

Eurasia analyst Carlos Petersen wrote: “Overall, these measures are intended to improve the short-term financial standing of the firm, minimising the need of new debt issuance this year and, most importantly, trying to avoid a downgrade of the firm’s long-term credit rating in foreign currency. Fitch and Moody’s have Pemex one notch above investment grade, while S&P has it three notches.”

He said “the problem is that the long-term plans are less convincing and pose a meaningful risk to the firm.”

The presidential administration believes Pemex can solve its own problems and reduce production declines, a view Eurasia finds “extremely optimistic”.

According to Petersen, “Pemex is a highly inefficient firm that, even with the financial help of the government, will struggle to significantly increase the country’s oil production.”

He added that “the government’s energy team has very limited experience in the sector,” while more moderate voices exist but have limited influence.

Plans announced this week for Pemex to do its own work in building a new refinery will further add to the work on the company’s plate, Moody’s wrote in a note to investors.

“The fact that this project will advance under the supervision of Pemex and the energy secretariat will mean one more task for the directorial team of Pemex, which is already fighting to stop the fall of crude production and improve existing refineries,” said Peter Speer, senior vice president at Moody’s.

Weekly

Pemex reveals package of financial support measures