Sunday, April 24, 2016

Turning the tanker: A daunting challenge faces the new boss of Mexico’s oil giant

 From @theeconomist -- The radio in the office of José Antonio González is tuned to American classical-music stations. The sounds may be relaxing, but the firm González has led since February—Pemex, Mexico’s state-owned oil company—is in crisis. On April 13th the Mexican government was forced to respond to the firm’s troubled finances with a 73.5 billion peso ($4.2 billion) aid package and a 50 billion peso tax cut. This week González headed to New York to soothe the fears of banks and rating agencies. They will take some persuading. Pemex’s crude production fell last year to 2.3m barrels a day, down from a peak of 3.4m in 2004. Next year, that will probably fall to 2m. After taxes and royalties the company made a loss of 522 billion pesos last year. In March Moody’s cut Pemex’s credit rating by two notches to its lowest investment grade. A low oil price hurts, of course. But Pemex is also suffering because of years of inadequate investment, unproductive working procedures, over-generous pension promises. A lack of specialisation and massive tax bills have added to the woes. Grim as that sounds, a strong leader, ready to make waves, could turn things around. Mexico’s recent energy reform and the appointment of González give Pemex a faint glimmer of hope. Analysts like the new boss. One calls him the best possible pilot of the worst possible aircraft. González is not an oil man, but spent 3 years on the board of Pemex when in a previous job at the finance ministry. As an engineer he is fond of detail. He has run huge operations before: in a 3 year stint as leader of Mexico’s social security agency, which has around 450,000 staff, he knocked it into better shape. He has started cutting costs at Pemex. Government officials want the firm to lower its budget by 100 billion pesos in 2016. The plan to make 2/3 of the savings by deferring investments will raise some eyebrows. The government’s recent aid package is a reminder that officials cannot let a firm that currently generates 1/3 of all government revenues falter through a lack of investment.


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