Abstract
PurposeThe article analyzes how oil price fluctuations are reflected in the management of Petróleos Mexicanos (Pemex) based on its balance sheet (BS) and particularly how oil price fluctuations affect Pemex's corporate income.Design/methodology/approachThe author uses a vector auto-regressive (VAR) model with seven variables for the period 1977–2019. The first variable is the oil price and the others belong to Pemex's BS: total income, sales revenue, operating costs, investment, payment of taxes, duties and contributions (TDC) and the payment of interest on debt.FindingsThe results show that in an environment of elevated fiscal burden that is of an excessive payment of tax by Pemex to the state, the price increases positively affected the income obtained from sales, but that surplus is used primarily to finance the fiscal expenses coming from the TDC, which is associated with the production and commercialization of hydrocarbons; physical and financial investment is disconnected from the evolution of price. Under a fiscal scheme that extracts, on average, 98.46% of Pemex's income, investment is not a priority.Practical implicationsThe findings of the research have important implications for Mexico's energy policy because of affecting the long-term financial and productive sustainability of Pemex.Originality/valueFirst, the study contributes to the literature on oil prices in Mexico by analyzing Pemex's fiscal burden from a corporate finance perspective, an area in which there are few rigorous studies. Second, the study contributes by providing quantitative support for the relationship between oil prices and BS variables through the VAR model.
Highlights
The influence of oil price in oil endowed economies, called “petro-states”, has been analyzed from different perspectives (Priest, 2012; Alekperov, 2015; Bouoiyour et al, 2017; Sanchez, 2016)
Petroleos Mexicanos (Pemex)’s financial indicators and the oil price show high volatility and non-stationarity, which is confirmed by performing the augmented-Dickey–Fuller test for unit root (Table 3)
In the vector auto-regressive (VAR) model with three lags, there is a high degree of collinearity between the variables, total income and sales revenue
Summary
The influence of oil price in oil endowed economies, called “petro-states”, has been analyzed from different perspectives (Priest, 2012; Alekperov, 2015; Bouoiyour et al, 2017; Sanchez, 2016). The effects of price volatility depend on the social, economic and geopolitical conditions of the country or region. In the case of Mexico, the economy is marked by the “paradox of abundance” or the “resource curse” (Sanchez, 2016); oil revenues contribute between 25 and 30% of public revenues (CEFP, 2019), making it, highly dependent on them (Anderson and Park, 2016; Huizar, 2015; Sierra and Mendez, 2017). Mexico is among the top 20 crude oil-and-condensate-producing and -exporting countries (EIA, 2020). Compared to other oil companies, Pemex is cost-competitive and profitable (Pemex, 2020a). The link between oil and public finances is an opportunity cost at a corporate level. The bonanzas from price increases go mostly to finance the federal budget through TDC, which, during 1977–2019, represented, on average, 98.5% of Pemex’s profits (Pemex, 2019a, b; SIE, 2019)
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