The federal government’s decision to cut its public expenditure for 2015 by 2.65%, or MX$124 billion, would not be a major problem if half that cut did not come out of the budget of the national oil company, PEMEX. This amount represents 10.4% of the MX$594.6 billion total expenditure PEMEX had planned this year. Industry experts have lambasted the move, calling it disproportionate and stating it threatens to stall the implementation of the Energy Reform.
Further complicating matters, much of the costs of the company cannot be cut, especially since PEMEX has a payroll that beggars belief. Companies with a turnover four times higher than PEMEX have less than half its staff. For example, ExxonMobil had sales for US$438 billion in 2013 but has 76,900 employees compared to PEMEX’s 185,000 in that same year.
On top of that, the current decline in oil prices is causing oil companies to shed staff in an effort reduce operating costs. However, cropping PEMEX’s in-house or union staff is a legal minefield. Furthermore, the privileges provided by PEMEX’s collective agreement or the pressure that may be exerted by the powerful Oil Workers Union (STPRM) only exacerbates this quagmire. Personal services, staff salaries, and social security cost PEMEX MX$90 billion every year. If pensions and retirement benefit commitments are added on top, this figure reaches MX$133.2 billion. Finally, the interests on the parastatal’s debt add up to MX$53.9 billion, totaling MX$187.2 billion of immovable expenses. This leaves the budget dedicated to investment as the only one that could be cut. According to the Treasury, this stood at MX$354.6 billion for 2015. The negative consequences of cutting this budget would not only impact PEMEX’s already diminished production capacity, but the entire service industry that has flourished around the former monopoly over several decades.
As already announced, PEMEX’s refineries would be the first to tighten their belts, since the NOC’s refining and petrochemical areas present lower profit margins than exploration and production activities. This announcement arrives only six months after PEMEX signed contracts worth US$2.8 billion to build cleaner fuels plants and to reconfigure its refineries, in spite of the premise that budget cuts should not undermine its ability to supply the market with petroleum products. The trimming will certainly reach contracts with service providers that may now have to be renegotiated. Furthermore, this would undoubtedly increase the country’s dependence on imported fuels.
This fact brings to light PEMEX’s utter domination by the government’s public finances concern, instead of a business vision that will guide the new productive enterprise of the state. PEMEX’s transformation will not be able to proceed smoothly as long its old model of governance continues to cast a shadow over it. However, some options are already on the table, such as expanding the number of operations that PEMEX pursues with private partners, which would help to shift many of the costlier expenses onto new private entrants to the market.