Mexican Senate OKs Pemex tax reforms

The Associated Press

Mexico’s Energy Department applauded a Senate decision Nov. 8 to approve changes in tax rules for state oil monopoly Petroleos Mexicanos, or Pemex, that will leave the company with more money for exploration and production.

Pemex currently surrenders most of its income to the government in the form of taxes, leaving it little money for investment.

“The Senate approval is a positive step,” the Energy Department said in a statement. “We recognize the senators’ sense of responsibility in granting Pemex more funds for investment, with the aim of increasing oil production and benefiting the country.”

While the Senate must still reach an agreement with the lower house on one clause in the bill, its final implementation now appears certain, clearing the way for legislators to focus on the 2006 federal budget. The changes will give Pemex a lower tax rate on oil and gas production from new projects, where investments raise the cost of production compared with costs at established operations. The high tax rate on Pemex, which pays 61 percent of its sales to the federal government, has left the state company with net losses in recent years despite record high crude oil prices.

As a result of the cash drain, Pemex has not been able to expand reserves fast enough and some of its infrastructure — including pipeline networks — is crumbling. The new bill is aimed at helping solve those problems.

Pemex’s budgets are included in the federal budget.

The new tax treatment has been estimated to save Pemex between $2 billion and $3 billion — and as much as $13 billion over four years.