Economics: Pemex Plan: Lingering Doubts
Last week, after a wait of several months, Petróleos Mexicanos announced its 2016-2021 Business Plan. CEO José Antonio González Anaya had been mentioning this plan since August, saying that it would define Pemex’s strategy and actions for the next five years, to overhaul the financial situation of this state-owned productive enterprise and shore up its operations.
Although this plan reveals substantial progress in terms of savings, efficiency and modifications resulting from the energy reform and additional efforts on the part of the company, it does not provide enough evidence that the company is taking action and making the changes necessary to face existing challenges to its finances and its production of crude oil, natural gas, oil by-products, petrochemicals and services.
The Business Plan presents two scenarios for the balance sheet: one assumes inertia, the “Business Plan” scenario, in which Pemex concentrates only on activities that are profitable after tax, particularly exploration and production, and with operating improvements in other areas of the company. The other scenario is more optimistic (the “Improved” scenario) and provides for the startup of various alliances with other companies under farm-out schemes, which would not only save Pemex money on expenditures but would also have tax benefits. This week’s Economic Outlook analyzes the viability of the scenarios it puts forward for exploration and production, industrial transformation, and other business lines.
In other economic news, last week also saw the release of unfavorable economic data on the level of supply. Industrial activity fell at a seasonally adjusted, 12-month rate of 1.3% in September, that indicator’s third contraction in as many months.
Although the utilities (+1.9%), construction (+1.2%) and manufacturing (+0.7%) sectors showed growth, those positive numbers were completely offset by the ongoing contraction in extractive industries (-9.7%). A 9.0% decrease in the extraction of oil and a 4.9% decline in the mining of metallic and nonmetallic minerals weakened that sector’s headline result. In addition, mining and drilling-related services, the least weighty component, experienced yet another sharp plunge in activity (27.3%) compared to a year earlier.
In contrast, the week also produced strong demand indicators. The national retail association (Antad) reported that sales at all stores of affiliated retailers, including newer locations, were a real 8.1% above levels of a year earlier during October. Same store sales of affiliated retailers (those that have been open for at least a full year) grew a real 4.5%, the strongest increase in three months.
According to the most recent data from the authorities, domestic consumption expanded 3.2% between January and August of this year, an increase almost identical to the one reported for the same eight months of 2015.
That performance dovetails with data on consumer credit, which grew at a real, 12-month rate of 10.2% in September, a considerable improvement over the 5.7% rise reported for the same month of 2015. Between January and September of the current year credit grew a real 10.1% year on year, more than three times greater than in the same nine month period of 2015.
The Consumer Confidence Index fell 7.0% in October on a seasonally adjusted basis, with sharp declines in all components except for expectations of acquiring durable goods, which broke with negative terms of recent months to climb 1.3%, which could bode well for this holiday shopping season.
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