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PEMEX’s debt: its absorption by the SHCP to convert it into sovereign debt and its fiscal implications

At a press conference held last Friday, January 27, 2023, President Andrés Manuel López Obrador announced measures whereby the Ministry of Finance and Public Credit (“SHCP”) would convert part of Pemex’s debt with various lenders into a sovereign debt, which implies that the State will pay part of the debt, providing support to such state-owned productive enterprise, as has been done since previous administrations. Translated with www.DeepL.com/Translator (free version)

The debt that Pemex has for 2023 is ten billion dollars, which translated into pesos is approximately one hundred eighty-eight billion pesos and, from what the President said, it is assumed that it is that part of the debt that the SHCP will take care of. However, there is still nothing definite as to the amount and form of such action.

The main purpose of the foregoing is -as has been done for many years with Pemex- to reduce or minimize the debt owed by Pemex, since by absorbing part of Pemex’s debt, the SHCP would have access to lower interest rates and thus continue with the series of support that the Government has granted to the oil company in order to avoid its bankruptcy.

The relevant aspect of the announcement is not as such the action intended to continue “saving” Pemex and its investors, but its impact or implication on public finances and, finally, on tax matters, in relation to taxpayers.

As is done every year, the Federal Government makes an estimate of the resources it will receive (revenue budget) and a budget of what it will spend (expenditure budget). Both calculations are made and published annually and are contained in the Federal Revenue Law and the Federal Expenditure Budget.

In terms of expenditures, it should be noted that everything that the Government will spend is contemplated in the aforementioned document, allocating various amounts to projects and issues of national relevance. Thus, the agency in charge of estimating the level of income and spending at the federal level is precisely the SHCP, which will also be in charge of managing federal resources for spending in accordance with the Federal Expenditure Budget.

However, in order for a State to be able to make an expenditure, it must necessarily have income, as is the case with any company or individual. However, in the case in question, most of the State’s revenues come from taxes, social security contributions, contributions for improvements, duties, profits and products, as well as from the rendering of services or sales of goods, that is to say, from resources obtained directly from the governed. For fiscal year 2023, it is expected that the Federation will have an estimated income of more than eight trillion pesos, most of which is made up of the aforementioned tax payments and concepts made by Mexicans.

The fact that the SHCP absorbs part of Pemex’s debt will necessarily imply that, within the planning of public spending, a significant portion of the State’s total revenues must be allocated to the payment of the debts incurred by Pemex. The simplest way to translate the above is that part of the money that Mexicans pay for performing a job, for carrying out a business activity, for consuming/acquiring a good or service, etc., will be destined to pay the debts of said company.

However, in a country with widespread shortages and deficiencies in infrastructure, health, technology, education, transportation, among others, it is complicated to think that we will have to take care of the debt of a company that for years has had a high deficit, It is also a company that does not generate benefits or profits, which, as is the case with private sector companies, would imply that Pemex should be liquidated and not, on the contrary, that resources should continue to be spent without any real benefit. Beyond the bankruptcy of Pemex, investors who risked their money for the sole purpose of obtaining personal and private economic benefit are also being rescued.

Contrary to using public resources to pay Pemex’s debts, it would be more positive to use these funds to develop infrastructure projects in renewable energies and to improve environmental conditions, which would be positive for our country and the rest of the world.

Although to date the SHCP has yet to explain precisely how and what will be the exact amount of the debt it will absorb from Pemex, it is certain that the money to meet these obligations will necessarily come from public resources, of which we are all participants and which, contrary to what is claimed, should be used for the benefit of the citizens. However, with the measure implemented, sectors of great relevance and importance to the citizens will no longer be privileged in order to face the liabilities of the aforementioned state-owned productive company.

If you have any questions, please contact us at the following e-mail address:

Luis Shahid Kanchi Gómez lkanchi@acsan.mx

Luis Shahid Kanchi Gómez

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