MercoPress. South Atlantic News Agency

Pemex on the “verge of bankruptcy”

Mexico's state-run oil monopoly, Pemex, is “on the verge of bankruptcy” with liabilities totalling 88.5 billion US dollars and pending annual investment requirements of 10 billion, the corporation's top executive said Thursday.

"These numbers have us on the verge of bankruptcy, literally, and we need to say so" Luis Ramirez Corzo, Pemex CEO revealed in a live television program. "The financial structure of Pemex is in crisis" he said underlining that the company has a 45 billion US dollars debt.

More than half, 24 billion is in off-balance-sheet obligations that must be paid to private contractors upon completion of projects. Pemex is forced to resort to such accounting devices by a tax regime that claims more than 60% of the company's gross revenue for the Mexican treasury.

"In 12/18 months, Cantarell - the fourth largest oil field in the world - will begin to decline and we don't have another one like it" warned Mr. Ramirez Corzo. Cantarell is the offshore deposit from where 80% of the country's oil annual production comes. Mr. Ramirez Corso emphasized that Pemex needs roughly 10 billion US dollars annually just to ensure the current production levels of 3/3.5 million bpd.

However to redress the situation the Mexican Congress must play a crucial role in changing the current taxing structure which will place the company in a sounder financial and operational situation.

Last year Pemex by way of taxes, fees and royalties paid to the Treasury 54 of the company's 70 billion US dollars gross income, equivalent to 77% of gross revenue and 103% of profits.

The lower house of Congress last year passed a bill easing Pemex fiscal burden but the proposal is still under discussion in the Senate.

Mr. Ramirez Corzo stressed that unless Pemex can significantly lower its tax bill or gain ready access to private capital, much of Mexico's oil will remain under the ground or beneath Gulf waters. He stressed that the participation of private firms in Mexico's energy sector, almost banned under current legislation, is not tantamount to privatization or a loss of sovereignty.

The Mexican oil industry was nationalized in 1940 and since then Pemex is considered the "crown jewel" of the country.

Mexican president Vicente Fox lacks sufficient legislative support and with a presidential election in a year's time it's hard to see how Pemex' situation could be reversed.