Perhaps because of the backlash that he received from the markets, or perhaps because of the hinted warnings from Moody's that did not see the construction of the Dos Bocas refinery as a good use of PEMEX's funds, AMLO took a step back on Friday.
After declaring the bidding process for Dos Bocas void after none of the four participants could meet his US$8.0bn cost ceiling, AMLO said at his daily press conference on Friday that instead of one big refinery with capacity to process 340 mboed (thousands of barrels of oil equivalent per day) he will build two smaller refineries, and in two stages.
According to AMLO, details will be made public in the next week and will consist of the presentation of a project to build a refinery with a processing capacity of c170 mboed. This project is expected to produce c85 thousand barrels of gasoline per day and c50 thousand barrels of diesel daily.
AMLO also said that the construction of a second refinery will be a function of the potential available funding for the project, and that it is not even clear if this second stage will be built during his administration.
Further, local news reports said that "sources that participate at the Offshore Technology Conference in Houston, Texas, stated that PEMEX will not build the Dos Bocas complex" and that instead, PEMEX "will be the administrator, under the watch of the Ministry of Energy, and will auction the projects to construction companies."
According to news reports, PEMEX will also be in charge of the purchase of all necessary equipment "in order to achieve savings of between 18% and 22%" of the total costs.
We see this as a good sign in the sense that this is the first time that we have seen AMLO back down (albeit not completely) from any of his statements and promises.
Still, we believe that even at this smaller scale, the case for PEMEX does not improve as this administration appears to continue to prioritise investments in the low-margin refining segment rather than using those resources to recover, at least partially, PEMEX's production levels.
Further, we believe that the decision to "split" the Dos Bocas project into two smaller units was more a function of markets' and ratings agencies' pressure, than a decision made after a strict cost-benefit analysis or a considered revision of AMLO's strategy related to PEMEX.
We continue to rate the PEMEX family of bonds a Hold.