New Pemex CEO Raises Hopes Of Contractors For $7B Payment
(Bloomberg) -- When you’re owed $7 billion and the borrower asks for more time to pay, it tends to make you nervous.
That’s why oil service companies are pinning hopes on Pemex’s new Chief Executive Officer Jose Antonio Gonzalez Anaya.
Anaya told Congress last week that the state-owned oil company will pay what it owes to 90 percent of the service providers “in literally days” after securing a credit line from national development banks. Pemex’s urgency under Gonzalez Anaya to pay the companies is a far cry from the strategy employed by the previous administration, which last year cut contractors’ daily rates and extended the payment period to 180 days from 20 days as outstanding debts reached record levels.
“This sends a sign of stability and confidence to the sector, which has been very nervous” payments would not be made, said Erik Legorreta, President of the Mexican Oil Industry Association, which represents around 3,000 service providers, in a phone interview. “Members of the industry now have the confidence and certainty that the payments will be honored.”
Pemex will turn to local development banks Banobras, Nafinsa and Bancomext for a 15 billion-peso credit line. That will allow the producer to begin to chip away at the debts, which ballooned to 147 billion pesos ($8.28 billion) last year, according to a Pemex statement. Mexico’s Finance Ministry is also preparing a support plan to help Pemex to make the outstanding payments, which could include financing options such as a capital transfer or reduction of the company’s tax burden, chief economist Luis Madrazo said in a March 8 interview.
“It’s incredible, but we are going to be able pay 90 percent of the providers that Pemex had a debt with last year in the upcoming days,” Gonzalez Anaya told the congressional energy committee on Mar. 7. “We have been working with different organizations that represent the providers and have developed a very interesting scheme, in which we will pay the providers in a very short time period.”
Pemex will pay the debts of all small to mid-size providers owed less than 85 million pesos. The outstanding debt remaining to Pemex’s larger service providers will still be around 100 billion pesos, according to a Pemex press official.
Mexico’s central bank will soon send the Finance Ministry as much as 300 billion pesos that it made from exchange rate gains on international reserves last year, a person familiar with the situation said last week. The surplus from the central bank could be used to help Pemex reduce its debt, Finance Minister Luis Videgaray said last month.
While waiting for payments, contractors across Mexico have been forced to freeze projects or lay off employees, according to Gustavo Arballo, President of Mexico’s Construction Industry Chamber, which represents around 500 Pemex’s oil service providers. Cotemar, one of the country’s largest providers, announced March 10 it would have to cut as many as 2,000 workers because of canceled contracts with Pemex.
Unemployment has spiked in oil industry dependent states such as Campeche and Veracruz as Pemex has delayed payments and oil prices have declined, according to Legorreta. Pemex’s announcement on Feb. 29 that it will defer investment in exploration projects and reduce crude production is viewed as credit negative for Mexican states which depend largely on oil revenue, according to a March 3 report by Moody’s Investors Service.
“We have been told that 100 percent of providers will receive payment, just some faster than others,” said Arballo. “It gives us a lot of comfort that one of the first decisions made by the new CEO was to prioritize the debts of the small and medium-sized companies.”
--With assistance from Ben Bain. To contact the reporter on this story: Adam Williams in Mexico City at firstname.lastname@example.org To contact the editors responsible for this story: David Marino at email@example.com Susan Warren
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