(Bloomberg) -- Mexico is seeking as much as 138.7 billion pesos ($7.3 billion) worth of tax breaks for Petroleos Mexicanos in 2020 and 2021, according to a document sent to Bloomberg by the office of Pemex’s Chief Executive Officer Octavio Romero.
The government will propose changes to the Hydrocarbons Revenue Law on Sept. 8 that would affect Pemex’s profit-sharing duty, known as DUC, which represents more than 85% of direct taxes on Pemex’s oil production, the document said. The proposal would reduce the current profit-sharing duty from 65% today, to 58% next year and 54% in 2021, resulting in savings of 47.1 billion pesos and 91.6 billion pesos, respectively.
The gradual cuts are expected to replace a previous Finance Ministry proposal to transfer $7 billion to Pemex from the Oil Revenue Stabilization Fund, known as FEIP, Romero told Bloomberg in a May 16 interview. The yield on Pemex bonds maturing in 2027 pared a rise earlier in the day to just 0.3 basis points, to 6.49%.
“Pemex faces a high tax burden, which is why the government of Mexico has decided to modify its fiscal regime to lighten it,” the document said. “This modification will be made gradually over the next few years, in such a way that it does not generate fiscal imbalances for the government.”
The proposal is the latest in a string of measures aimed at shoring up the finances of Pemex, whose $106.5 billion debt is the highest of any oil company. Pemex faces 14 years of oil production declines and its refineries are operating at about 35% of their capacity.
While the tax breaks are positive, said John Padilla, managing director of IPD Latin America, they will have no real impact unless Pemex can reverse falling output. “All they’re doing is diverting from one pocket to the other,” he said. ”Money will no longer resolve what ails a very debilitated Pemex.”
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