Economics: Energy sector as a risk factor
Although the energy sector no longer serves as a dominant source of public sector revenues, or even of the country’s trade performance, as Mexico has been running a petroleum deficit in recent years, it retains its central importance to the broader economy (5.3% of GDP; 415,533 direct jobs), while the quality and reliability of such products are indispensable pillars in the economy’s efficient functioning.
President Andrés Manuel López Obrador has long spoken of an ambitious program to make the country significantly self sufficient in fuels and fertilizers, develop clean energies, and revive Pemex and public electric power utility CFE to greater financial and operational health, as well as to place greater emphasis on renewable energies and limit the participation of both domestic and foreign private companies in the energy sector. But in its first annual budget the government clearly ran up against major budgetary constraints in addition to the added funding challenges arising out of recent ratings agency downgrades and lowered outlooks in the wake of the airport cancellation decision last fall.
The 2019 budget bill failed to allocate any funds for some major campaign commitments, such as for reconfiguring refineries, installing new hydroelectric plants, modernizing thermoelectric plants, and rehabilitating the production facilities of the country’s erstwhile fertilizer company. It also provided far less than needed for many other important projects such as converting 10 thermoelectric plants to combined cycle formats, much less the 118 preexisting projects and investment programs for producing cleaner gasoline and diesel.
Serious risks are arising from the disconnect between the stated funding needs of the country’s energy sector and those of the Mexican government. Moreover, Pemex’s capex and operating budgets have been slashed. During December, the government announced a series of important energy policy initiatives, but failed to deliver any substantial explanations or detailed data with which to understand the programs, so observers were left with many doubts and questions.
If the administration is to revive investor interest in energy ventures and shake off the shock of the ratings downgrades that piled up in the immediate aftermath of the airport cancellation decision, Pemex and government authorities must make considerably more information public, and better explain their operating and financial strategies.
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