Flash Fixed Income Report /
Mexico

PEMEX and Romo: Credibility on the line

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    22 May 2019
    Published by

    Mr Alfonso Romo, President Andres Manuel Lopez Obrador's (AMLO) Chief of Staff, said to reporters at an event in Mexico City yesterday that the President might "seriously reconsider oil auctions" at a meeting to be held in six months. According to local press reports, AMLO could allow what would be the restart of the Energy Reform deep-waters exploration and production auctions, if those who have won previous auctions can show meaningful steps in the advancement of their respective projects.

    We believe that although PEMEX's bonds rallied on these comments by Mr Romo, investors would be wise to remember that it was also Mr Romo who some months ago told investors that the originally planned New Mexico City Airport (NAICM) would not be cancelled. In addition, there have been reports in the local media that Mr Romo tendered his resignation a few weeks ago to AMLO (but that it was rejected), that he does not see eye-to-eye with Minister of Finance Carlos Urzua, and even that he has been somewhat relegated from the closest circle of advisors to the President.

    Even though we have been big advocates of the resumption of these auctions in order to take the real fundamental steps that would actually make PEMEX a viable company, we have to take Mr Romo's statement with a grain of salt because AMLO does have a tendency to deny what his advisors say publicly, as was the case when Deputy Minister of Finance Arturo Herrera said that the Dos Bocas refinery would not be built until feasibility studies were completed, something that the President denied the day after. Further, during the transition period late last year, when we hosted investor meetings with Mr Herrera, he told investors that the construction of the NAICM would continue and the project would be finalised because "it had reached a point of no return."

    We believe that by saying that a meeting will be held to discuss the potential future auctions in six months, he is giving himself enough time for investors and the markets to forget that he ever said it, in the event that AMLO opts to continue with the veto on deep-waters auctions.

    Although Mr Romo has said that "everything is on the table" regarding PEMEX, we'll believe it when we see it. PEMEX's credibility, and that of this administration, is on the line again.