Thread by @PerMexicum

Who is in bankruptcy Pemex, Mexico, or both?

It is obvious that PEMEX is a fallen angel, a company that cannot meet its obligations and that eventually will be bankrupt. The only question is, when will it default?

@nytimes @WSJ @globeandmail @TorontoStar @asiatimesonline @BostonGlobe @australian @FT @TheEconomist @RandaHabib It must be obvious that PEMEX is a fallen angel, a company that cannot meet its obligations and that eventually will be bankrupt. The only question is, when will it default? 1/16

It is not a simple answer since many factors converge in the bankruptcy of the Mexican state oil company.

First, you have a huge labour liability that has only increased over time. Every year it gets worse as the life expectancy of retirees has gone up. 2/16

Second, the amount of taxes paid by PEMEX is enormous; around fifty per cent of its total sales are dedicated to paying taxes. PEMEX is the oil company that pays the most taxes worldwide. 3/16

With that in mind, it is extremely difficult for any company to continue investing in its core business, in this case, exploration and exploitation of oil wells. 4/16

Third, past federal administrations have tried a vertical integration of PEMEX with other businesses such as petrochemicals and refineries, mainly because of a narrative of energy sovereignty. 5/16

In practical terms, this energy sovereignty does not exist since more than 50% of the gasoline and diesel consumed in Mexico are imported from the United States. 6/16

Another fact is that Mexican refineries are obsolete and the Lopez administration has failed to maintain them properly, which is why there have been so many accidents in Mexican refineries during the Lopez government and in PEMEX in general. 7/16

The latest accident was setting the Gulf of Mexico on fire. 8/16

The main reason why fuels are imported into Mexico is that it is cheaper to buy them abroad than to produce them in Mexico, considering that PEMEX's refineries have historically been a total waste of money and that this line of business has consistently presented financial… 9/16

…losses.

Considering that PEMEX has a negative capital, a huge labour liability both in debt and in labour obligations, plus taxes, it is a company that finds itself with permanent damage and that will eventually be the greatest fallen angel in history. 10/16

However, this leads us to the initial question: Who is bankrupt, PEMEX or Mexico? Considering that approximately 30% of the country's total budget comes from PEMEX taxes. 11/16

Therefore, lots of money is being used to keep the company afloat; however, the cost is infamous, since money has been diverted from other budget items, specifically health, and the cost is children with cancer and AIDS patients without treatment and women who are not… 12/16

…being screened to prevent breast cancer. Pemex is being kept afloat at the cost of human lives. The most vulnerable in Mexico are being slaughtered to keep an already bankrupt company alive. 13/16

It is so bad, financially speaking, that even its external auditor has expressed doubts about whether it will continue to be a viable business. 14/16

With this in mind, it should be clear that both PEMEX and Mexico are in deep financial trouble and that the only way out is to continue borrowing in international debt markets with the consequence of increasing the ratio of debt to GDP. 15/16

A rational government would have decided long ago that PEMEX is no longer viable and that instead of an asset it has become a liability for both Mexico and the global investment community. 16/16

@threadreaderapp unroll

More on Mexico under Lopez administration.

https://twitter.com/PerMexicum/status/1411378482492366849?s=19