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Energy Policy
journal homepage: www.elsevier.com/locate/enpol
Oil fiscal regimes and national oil companies: A comparison between Pemex
and Petrobras
Juan M. Ramírez-Cendrero
⁎
, María J. Paz
Complutense University of Madrid, Spain
A R T I C L E I N F O
Keywords:
National oil company
Oil fiscal regime
Petrobras
Pemex
A B S T R A C T
Analysis of the determinants of the performance of national oil companies (NOCs) is and has always been
among the most discussed topics in specialized literature. In this context, the uneven path experienced by two
major Latin American NOCs – Petrobras and Pemex – is striking. Our work seeks to explain the uneven
performance, focusing on the productive aspects. In particular, we analyze the oil fiscal regimes in Brazil and
Mexico as a very crucial aspect – though not the only one – within oil-rich countries that may shed light on the
disparities between Petrobras and Pemex. The contribution of our work to the existing literature derives from
the relationship that we establish between the characteristics of the respective oil fiscal regimes and the
productive performance of the two NOCs, with special consideration paid to the ways in which a fiscal regime
contributes, or not, to promoting and guiding the investment efforts of companies. We compare investment,
production, and reserve indicators of Pemex and Petrobras and conclude that the Mexican and Brazilian oil
fiscal regimes can largely explain the productive and investor performance of both NOCs.
1. Introduction
Latin America has historically had cases of industrialization and
modernization from natural resources, particularly from oil. Among the
most relevant experiences in the region are certainly the cases of Brazil
and Mexico. Both experiences shared some features in the second half
of the twentieth century: strong industrialization, a major oil and gas
industry, all-powerful national oil companies (NOCs), and a State that
acted as a driver of development.
However, at the beginning of the 21st century, the differences
between Brazil and Mexico became more meaningful, and the commonalities
gave way to divergent developments. Among those differences,
the performance of their respective oil industries remains highly
significant, in particular the behavior of their NOCs – Petrobras in
Brazil and Pemex in Mexico. In both countries, the oil industry plays a
key role, and both Petrobras and Pemex are considerably more than
public companies: they are key players in economic dynamics.
However, while the current role of Petrobras is reflected in its
contribution to energy policy, and especially to Brazilian industry, the
role of Pemex is significantly limited to the tax field, as a generator of
revenue for the State. Recently, Mexico began implementing an energy
reform (December 2013) that aims to imbue Pemex with the same
productive, technological, and competitive capabilities as other public
oil companies, such as Petrobras or Statoil. In fact, Brazil has also faced
changes in its oil fiscal regime (OFR), as will be reflected throughout
the work.
Considering these aspects, our work will show the importance of
some political and institutional factors to explain the behavior of the
NOC, especially its productive performance. In particular, we try to
explain how the specific (and very different) OFRs of each country
condition the performance (also differing greatly) of each NOC. We
define the OFR as the set of rules, laws, regulations and agreements
which governs the incomes derived from oil and gas (O & G) exploration
and exploitation; therefore, the OFR regulates transactions and
links between the state and the companies involved (Gudmestad et al.,
2010). Meanwhile, analysis of the performance of the companies will
be restricted to productive aspects such as investment, production,
investment, and reserves (see Section 2 for more detail).
From this approach, our paper aims to identify the specific features
of each OFR and its influence on the working and performance of both
NOCs, Petrobras and Pemex, in terms of their structural nature and the
prominence of the O & G industries in the economies of Brazil and
Mexico. In this paper, we try to answer the following questions: What
differences have been effected in the OFRs of Brazil and Mexico from
http://dx.doi.org/10.1016/j.enpol.2016.11.009
Received 10 July 2015; Received in revised form 28 September 2016; Accepted 4 November 2016
⁎
Corresponding author.
E-mail addresses: jmramire@ucm.es (J.M. Ramírez-Cendrero), mjpazant@ucm.es (M.J. Paz).
Energy Policy 101 (2017) 473–483
Available online 09 November 2016
0301-4215/ © 2016 Elsevier Ltd. All rights reserved.
MARK
the 1990s until 2014?1
And are those differences sufficiently important
factors to explain the uneven performance of Petrobras and Pemex?
To answer these questions, we will carry out structured case
studies; this is a methodology that we consider very suitable for
analysis of the proposed causal link (between the OFR and NOCs
performance) when only two countries are under study, in which case
cross-country methodology research is invalid. Methodology based on
structured cases studies allows a deep comparative analysis of the
elements that characterize the causal link between both variables in
each of the countries.2
To carry out the structured case studies, we have
systematically reviewed the existing literature (reflected in the final
bibliography) and we have used primary data from official databases
(national and international) or provided by the companies themselves.3
Brazil and Mexico were selected for several reasons: for the
importance of Petrobras and Pemex and their respective economies;
for the differences between the OFRs in each case; and because the
current efforts toward energy reform in Mexico take the Brazilian
approach as a role model. We believe that these aspects are very
revealing to better understand the limits and possibilities of the
development process that resource rich economies face, especially in
Latin America. After studying several Latin American economies
(Argentina, Brazil, Bolivia, Ecuador, Guatemala, Mexico, among
others) and different sectors (automotive, electric, oil & gas, textile)
in previous research, we believe that a comparative analysis of two
large NOCs in the two largest economies in the region will improve
understanding of the contribution that resources like oil & gas can
make in pursuing the challenge of development.
In order to do this, after situating our work in the current debate
around OFR and NOC performance, we analyze two case studies, Brazil
(Petrobras) and Mexico (Pemex), from which we can draw conclusions
that respond to questions raised.
2. Theory: oil fiscal regimes and NOCs
The creation and strengthening of the NOCs have been key in
countries with abundant O & G reserves. This is mainly due to the
strategic nature of the O & G industry and its potential as a source of
income. As a result, the objectives of different development strategies
are one of the key determinants of the NOCs’ strategies, strongly
influencing their performance (Víctor et al., 2012).
Stevens (2003) delves into the relationship between the State and
the NOC and notes that the role assigned to such companies vis-à-vis
development strategies causes a conflict between “national objectives”
(the State) and “commercial objectives” (firms) that “create an impossible
no-win dichotomy […]. Either the NOC exerted its will and
pursued its own goals which were likely to lead to takeover of the State,
or the State exerted its will and effectively inhibited the NOC from
operating effectively" (Stevens, 2003:11). Mommer (1994) goes further
as he consider that the NOC is conceived to collect revenues for the
State (rentier states, Evans, 1989) and that, as a result, tensions arise
between the State, which wants to collect more revenue, and commercial
objectives. This approach underlies the idea that it is impossible to
reconcile commercial and national objectives and that the OFR is the
key determinant of how this tension is resolved in favor of one or the
other targets.
From this, we can identify areas of policy, which determine the
performance of NOCs and in which these firms also play a particularly
prominent role. The literature agrees by highlighting the OFR as key to
“escaping” the resource curse (Eifert et al., 2002; Mehlum et al., 2006;
Luong and Weinthal, 2010). Moreover, most of these authors also
agree that analysis of this policy should be made not only from the
perspective of the tax system that determines the distribution of
income among the different actors (a most frequent perspective), but
should also include analysis of the mechanisms which determine the
use of the incomes by the State (including to the NOC). It is the joint
analysis of the two elements what allows to explain more precisely the
relationship between OFR and performance of the NOC. Therefore, our
analysis of the OFR must include both dimensions. As noted, the OFR
is the set of rules, laws, regulations and agreements that guide the
distribution and use of O & G incomes. However, the mechanism that
allows the OFR to be linked with the productive performance of the
NOC is principally how it affects (by promoting or not promoting)
investment by the NOC. This is true for two main reasons: a) in the case
of public companies, investment decisions of the NOC – which are part
of the overall strategy of the company – can be clearly influenced by
governments, according to their developmental strategies; and b)
investments and exploration successes are the key variables that
determine the productive performance of the company (as measured
by its ability to reproduce the oil cycle, producing and increasing
reserves at least at the rate of production). Therefore, the key issue for
analysis is whether the OFR supports or undermines productive
investment of the NOC, and to identify in each case the precise way
in which this occurs. This is not to say that productive performance
depends solely on the OFR – it is influenced by many other factors,
both external and internal to the company – but the OFR is certainly a
key variable that justifies the current analysis. For this reason, we
believe that the OFR can be treated as an independent variable, not in
order to quantify the degree of influence between the OFR and
performance by the NOC, but to illustrate the mechanisms through
which these variables are related, in two different models (neodevelopmentalist
in Brazil, rentier in Mexico), in order to clarify the
limitations that exist in both cases.
Therefore, and given that limitations of space forbid development of
a comprehensive study of the performance for each company, this
paper will focus on the capacity of each NOC to ensure the reproduction
of the oil cycle – i.e., productive development, leading us to include
investment, production, and reserves as key indicators (see diagram
below).
3. Results and discussion
3.1. The Brazilian oil fiscal regime
The founding of Petrobras goes back to the 1950s and, as in the case
of Pemex (founded earlier), it occurs in a context marked by developmental
strategies specially focused on industrialization. Despite this
relative affinity, one key issue differentiated the two companies for
decades: the abundance of oil reserves in Mexico, and their scarcity in
Brazil. This fact, coupled with the aforementioned development
strategy, determined the industrializing orientation of a company that
was able, from its very inception, to obtain greater autonomy in
management than other Brazilian public companies. Petrobras also
had strong financial support from the State through tax benefits and
other financial resources to ensure the company's promotion of local
industry for more than four decades (Alveal, 1994). Thus for decades,
despite its relative independence, Petrobras remained a key instrument
of developmentalism policy.
The arrival of reforms in the Brazilian O & G industry was framed,
as in most other countries of the region, by the Washington Consensus.
In Brazil, the application of the Consensus elicited specific characteristics
resulting from the broad developmentalist legacy. Cypher
(2013:202–203) speaks of “neoliberalism by halves” as he argues that,
1
The analysis is extended to 2014 to display a medium-term perspective, which is
necessary given the technological and productive particularities of the sector. We end the
analysis at 2014 to avoid the strong influence that exogenous factors to OFR (particularly
the sharp decline in oil prices) have had on oil revenues, investment, and production.
2
See Víctor et al. (2012), and Luong and Weinthal (2010), who have used a similar
methodology to likewise analyze different aspects of institutional framework and NOCs
performance.
3
Official databases: International Energy Agency, National Petroleum Agency (Brazil)
and Mexican Hacienda. Databases of companies: Petrobras Annual Reports, Statistical
Yearbooks Pemex and Pemex (2013).
J.M. Ramírez-Cendrero, M.J. Paz Energy Policy 101 (2017) 473–483
474
in Brazil, these policies were never so “complete or firmly anchored in
the socioeconomic structure” as they were in most other Latin
American countries. Reforms in the O & G industry and subsequently
in the OFR are good examples of this “neoliberalism by halves”,
incorporating elements of change as well as continuity with the
historical monopoly (Paz, 2015). One of the main elements of
continuity is related to the control that the State retains over company
strategy. This control is formally common to all NOCs, but it has a
special significance in Brazil, where Petrobras remains a key instrument
in the energy and industrial policy. This implies that, when we try
to link OFR with the productive performance of the NOC, it is
necessary to pay attention to: i) the direct control that the State exerts
over a portion of the rents, usually known as the government take
(which the State captures through various taxes, and which is not
usually retained within the O & G industry); and ii) indirect control that
the State exercises over a portion of the rents captured by the NOC,
given that this portion is strongly conditioned by the objectives of
industrial and energy policy.
3.1.1. Fiscal regime and distribution of oil revenues
Based on the considerations noted above, we now turn to those
aspects of the Brazilian OFR that determine the allocation of oil
revenues. Before describing these aspects, it is necessary to clarify
that, currently, two regulatory frameworks co-exist within the O & G
sector: one that was set in the 1990 and remains in effect for certain
areas and concessions, and another that has been defined for the
specific development of the pre-salt area. The latter incorporates
several changes that are intended to ensure a developmentalist boost
from O & G. These changes include the increased participation of the
State in Petrobras (raised to 59% of those shares entitled to vote, and
48% of total capital), the creation of a new public company4
which
manages the new signed contracts, and the obligation of Petrobras to
act as operator in all fields with a minimum stake of 30%. Thus,
Petrobras maintains its dominant position in the sector, which can slow
down the exploitation of O & G reserves depending on the financial and
operational capacity of the company. This is a key issue to which we
will return later.
Moreover, Law 12.351, approved on 22 December 2010 (Lei do
Pré-Sal), establishes a production sharing regime (PSR) instead of the
concession regime (CR) in effect in other areas since the end of the
monopoly. The fundamental difference between the two regimes is that
in the CR, companies assume the risk of exploration and production
and, consequently, if exploration proves successful, those companies
receive ownership of the oil and gas found.5
In the PSR, the risk is
shared between two or more operators, one of them public, which
allows the State to maintain more control over exploration and
production (E & P) activities, in addition to retaining ownership of
hydrocarbons. All operators are compensated for the "recoverable"
operation cost (cost oil) by delivering oil.
Several papers have examined the real advantages and disadvantages
of PSR over CR and its adequacy to the Brazilian context (De
Oliveira, 2012; De Oliveira, 2010c; Sauer et al., 2010; Serra, 2011).
Historically, the PSR has been preferred by developmentalist governments
for the extent to which it allows, a priori, greater control over
production and oil revenues. However, as De Oliveira (2010b:4)) notes,
CR also allows for this control by raising or reducing taxes on exports of
oil and refining products, and through tendering policy.
Beyond historical trends, from the point of view of our work, it is
necessary to know the characteristics of the OFRs under both regulatory
frameworks, and their consequences in terms of government take.
To determine the fiscal regime affecting the oil sector, it is necessary to
distinguish between tax and non-tax issues. The former generally
include taxes levied on any good or service produced or sold in the
Brazilian economy, along with the specific tax on fuels (CIDE). The
second category, known as the government take (as defined in Article
45 of the Petroleum Act), includes four collection mechanisms with
specific impact on the activities of E & P: royalties, special participation,
signature bonus and allocation, and area occupancy rate.
The way these resources are distributed among different administrations
(local, state or regional, and national) is also fixed in the
Petroleum Act (Law no. 9.478, 06/08/1997). Only a few guidelines are
mentioned around the use of these resources, focusing on the national
government share, which represents but a small fraction of the total
collected.
Among the four concepts mentioned above, the two most important
(in terms of tax capacity) are royalties and special participation, which
represent more than 90% of the government take. Furthermore, both
mechanisms (unlike the remaining two) are linked to production, and
the percentages for each are established in the Petroleum Act. In the
case of royalties, the range varies between 5% and 10% depending on
the geological risks, the outlook for production, and other factors
considered by the National Petroleum Agency, (ANP).6
With respect to
special participation, which apply only to areas of high production and
high returns, these range between 10% and 40% – percentages that
apply to the value of production after the deduction of royalties,
investments in exploration, production costs, depreciation, and other
charges. As in the previous case, the exact percentage is established in
the concession contract.
As we noted before, Brazil's pre-salt offshore discoveries prompted
the adoption of a new regulatory framework which also included new
fiscal rules. This raised some expectations about a possible increase in
government take (Serra, 2011). However, the new fiscal rules, in terms
of the inclusion of a “government share” fully allocated to the national
government, have had little impact on the government take. This
“government share” is specially oriented to modifying the redistribution
of government take among different administrations. The main
collection mechanisms, such as royalties or signing bonuses, remain
the same in both regimes. Moreover, although certain tax issues
relative to the cost and profit of E & P activities are different in the
two regimes – see Rodrigues and Sauer (2015) for details – the criteria
for recognition of E & P costs are very similar in both cases, therefore
predicting similar results in terms of government take (De Oliveira,
2010c:63).7
In sum, the Brazilian OFR determines that the government
take in Brazil is significantly below international standards, according
to calculations made by the World Bank (Barma et al., 2012:162).8
But
4
Law 12.304, of August 2, 2010, established the creation of a company responsible for
managing the pre-salt contracts and audit costs, but that new public company (Pré-Sal
Petróleo SA, Petro-Sal) wasn’t actually instituted until the adoption of Decree 8,063, of
August 1, 2013.
5
The literature often differentiates between two modalities of the concession regime –
early concessions and modern concessions. Following De Oliveira (2010c:25-30), since
the end of World War II, and especially during the 1960s and ’70s, “the Modern
Concession has been developed in response to the worldwide political and economic
changes, especially with regards to the relationship between states and foreign oil
companies […] the term "modern" not only suggests a new era in which the contracts are
concluded, but also refers to the incorporation of new trends into the contract and an
attempt at a rational development of the country's natural resources. The term also
denotes the fact that foreign companies were made to assume an obligation to take into
account the relevant political, social, and economic interests of developing countries that
were overlooked under traditional concessions”. In this regard, the author argues that the
current Brazilian concession regime should be understood as a modern concession
regime.
6
The ANP is in charge of promoting regulation, contracting, and supervision of
integrated economic activities in the oil, natural gas, and biofuels industries (Article 8, I,
Chapter IV of Law No. 9.478/97). The ANP has been the key agency responsible for
ensuring the transformation of the State monopoly. One of the most important functions
of the ANP is to implement the various bidding rounds. Through bidding, different oil
fields are awarded to companies for exploration and production in a process of free
competition.
7
Estimation by Rodrigues and Sauer (2015) indicates that government take may be
lower in a field operated under PSR.
8
There is no consensus in the literature on the most appropriate methodology to
calculate the government take in O & G revenues. Estimates vary depending on the taxes
J.M. Ramírez-Cendrero, M.J. Paz Energy Policy 101 (2017) 473–483
475
as Agalliu (2011:47) notes, the government take can be quite misleading
if the criteria used for its calculation and the characteristics of oil
and gas exploitation in different countries are not known. Indeed, this
indicator is often used to show the gap between private and public
share in O & G revenues, which sometimes involves adding State and/
or NOC revenues to the government take category.9
However, in this
work our interest is focused precisely on the sharing of O & G revenues
between the State and the NOC in two countries characterized by the
prominence of the NOC in the exploitation of reserves.10
Following on our argument, it is crucial to analyze the distribution
of O & G revenues between the State and the NOC, to assess whether
the former is expressing what might be called ‘rentier eagerness’. The
data in Table 1 show that in relation to income, the average State share
for the period 2000–2014 stood at 22% if we include only the specific
tax forms, and at 36% if we include non-tax forms of collection. If we
consider operating profit (income minus production costs), the State's
share amounts to 26% and 43%, respectively.
The particularity of the Brazilian case is that, despite the nominal
end of the monopoly, Petrobras remains responsible for over 90% of
production; that is to say, Petrobras generates most of the O & G
revenues in the country. Therefore, the OFR allows the public company
to retain a majority share of the income generated by the exploitation of
O & G, which in absolute terms represented a significant rise in
Petrobras’ operating profits between 2000 and 2014 (see Table 1).11
This situation, which has gone on for a decade, is seen by Emilio Silva
(2010:52) as a virtuous circle made possible thanks to high oil prices
and successful exploration by Petrobras. However, since 2013, the drop
in oil prices have modified these conditions, implying major financial
constraints to E & P activities. The following section will return to this.
In sum, from the point of view of the government take in O & G
incomes, the Brazilian OFR departs from a rentier model in which a
major share of the incomes would go to the treasury to fund activities
not related to O & G industry. This means that the Brazilian state
directly captures a lower share (in relation to international standards)
of O & G revenues; but given its majority stake in the company, the
indirectly controlled income captured by Petrobras represents more
than half of O & G income. Such indirect control over income has
enabled various administrations to influence the strategic decisions of
the company, particularly in terms of capital investments. As noted in
Section 2, these investments are the intermediate mechanism that links
the OFR with the productive performance of the NOC.
3.1.2. Use of oil revenues: Petrobras investments in the context of the
Brazilian development strategy
Despite the semi-privatization of Petrobras, the government has
always held the majority of the shares entitled to vote, allowing the
State to maintain influence over the company's investment strategy to
achieve functionality within the overall energy and industrial policy
(Silva, 2010; Paz, 2014). A key indicator of this influence appears to be
the company's investments, which have been undergoing some changes
(see Table 2). The first changes came during the administration of
President Cardoso, through intensification of the exploration investment
program to achieve self-sufficiency. Later, once the country had
achieved energy self-sufficiency and following the pre-salt offshore oil
discoveries, Petrobras adapted its strategy to the neodevelopmentalist
policies of President Lula, characterized by (among other things) the
promotion of refining and bio-fuels, or the attempt to revitalize local
industry. To achieve the latter, the company intensified investments
toward the industrialization of the O & G industry. In fact, between
2004 and 2009, investments in this area grew at an average rate of
46%, versus 11.8% between 1997 and 2003 (see Fig. 1). However, since
2010, a clear divergence has emerged between investments in E & P,
whose share has increased very significantly (accounting for more than
65% of total investments), and any other type of investment, particularly
refining, participation in which has undergone a drastic drop.
Investment data show that much of the oil revenue retained by the
NOC is intended to feed continuation of the oil cycle, allowing (together
with the technological capabilities of Petrobras) for the growth of
production and reserves (see Fig. 2 and Table 3). This investment effort
has been supported by the State through various mechanisms: the
National Development Bank (BNDES), which in 2010 handled a total
budget of nearly $R170 billion, of which 15% ($R25 billion) was
allocated to the capitalization of Petrobras12
; the Programa de
Mobilização da Indústria Nacional de Petróleo e Gás Natural, or
PROMINP, created in 2003 to increase the participation of local
suppliers in the offshore chain; and the Programa de Aceleração do
Crescimento (PAC), created in 2007, which proposed greater investments
in infrastructure, particularly in the oil and gas sectors, mostly
by Petrobras.
Despite the growth in the capital investment, production and
reserves, the Brazilian model has not been free of contradictions
related to the indirect control that the State has over O & G revenues
through its influence over company strategy. These contradictions have
strongly emerged following the sharp drop in oil prices.13
In this
regard, two fundamental issues must be highlighted.
First, despite Petrobras’ retention of much of the oil revenue, the
ambitious investment program launched after the pre-salt discoveries
has greatly increased the indebtedness of the company (Table 4),
underlining one of the most vulnerable points of the model. That
program responds to the State's efforts to reconcile the commercial
objectives of the company and the national objectives of energy and
industrial policy. The priority given to national objectives was reflected
in the fact that investments in refining remained high for much of the
period, meanwhile reducing resources to the upstream area, which is
the more profitable in a context of high oil prices. Moreover, from the
end of 2014, the drastic reduction experienced in international oil
prices has added to Petrobras’ internal problems associated with
corruption scandals, also significantly altering the conditions of the
2000–2013 status quo, causing a drastic worsening of Petrobras’ rating
and increasing the costs of financing. This explains the 23% drop in
Petrobras’ total investments in 2014, although the fall in E & P
investment was only 7.5%. This situation will worsen as long as oil
prices continue to drop, as is happening with investments in E & P
worldwide (IEA, 2016).
Second, measures aimed at generating backward linkages, an
outstanding example of the industrialization role assigned to
Petrobras, could result in increased costs for E & P, thus reducing the
operating profit of the NOC. Indeed, as shown in Table 1, the cost rose
every year between 2000 and 2013, most sharply after 2006. This
increase has been influenced by the increasing involvement of offshore
versus onshore E & P, but local content requirements also seem to have
had a negative impact (difficult to estimate, as the Court of Auditors
(footnote continued)
included. There are basically two options: include only the specific production taxes
(royalties, for example) or include also general taxes (tax profit, for example). See Agalliu
(2011).
9
Whether or not the NOC shares in the government take (regardless of the other
criteria mentioned in the previous note) is what largely explains the vast gap differing
estimates for Brazil – Barma et al (2012) record 45%, while Agalliu records 72%.
10
Precisely for this reason, when we use the term government take, we do not include
the share of income captured by the NOC.
11
It should be clarified that the ownership of Petrobras is not entirely public. Until
2009, 54% of Petrobras shares were in private hands (42.5% of the shares entitled to
vote). In 2009, as a result of the capitalization with BNDES resources, private shares fell
to 40% (36% of the shares entitled to vote). The private ownership entails that part of the
revenues captured by Petrobras be allocated to private investors through dividends. See:
http://www.investidorpetrobras.com.br/es/gobernacion/capital-social/.
12
The Bank also has a program to support the O & G productive chain. As part of this
program, it has funded the renovation of the fleet to service Petrobras (BNDES 2010,
102).
13
Note that the decline affects the company in two ways: first, through the decline in
income, and second, through the deterioration of its reserves value.
J.M. Ramírez-Cendrero, M.J. Paz Energy Policy 101 (2017) 473–483
476
concluded in a study published in 2016).14
According to Romano
(2012) and De Oliveira (2010a), such requirements have driven
industrial development, but there is great heterogeneity in the competitiveness
of the different industrial branches. Local content requirements
and the industrial policy that covers them have failed to achieve
positive effects in those branches with the greatest potential competitiveness,
as has occurred in the successful experiences of Norway and
Singapore.
Ultimately, the analysis shows that the Brazilian OFR and the
Petrobras investments are clearly representative of the developmental
role assigned to the company by the State and the contradictory results
this has affected. The increase in production and reserves has been
accompanied by growing NOC indebtedness, unsustainable in a context
of falling oil prices and further aggravated by corruption scandals.
Despite the weaknesses shown by the company, a stronger commitment
by the major oil companies was not evident in the 12th and 13th
bidding rounds. Oil company decisions are clearly influenced by the fall
in oil prices. In the last round, the 13th, only a relatively small
percentage of the tendered areas were awarded. All of this opens
uncertainties about the future of the sector – uncertainties which,
moreover, could possibly extend to other oil-rich countries.
3.2. The Mexican oil fiscal regime
Pemex was formed after the nationalization of the sector by General
Lázaro Cardenas in 1938, and for nearly four decades the NOC was
aimed at supplying the energy resources that the Mexican economy
needed. This function took place in the framework of an import
substitution industrialization (ISI) phase turned toward the domestic
market (as with Petrobras). During this period, the Mexican Petroleum
Institute and the Federal Commission of Electricity were also formed;
these organisms and Pemex constituted the elite of the agencies
focused national development. All these agencies incorporated various
economic and social achievements among their objectives (Stajanovski
et al., 2012), such as the construction of infrastructure, housing, and
hospitals.15
In 1974, Pemex became an oil export company and was gradually
oriented toward the external market, from which most of its income
eventually derived. That change in Pemex was later fed by the discovery
of the huge Cantarell field in 1976. Thus, Pemex became a powerful
mechanism for generating revenue through oil exports – revenues that
nourished Mexican state coffers. Meanwhile, Pemex operated with an
infrequently renewed infrastructure and a minimum level of investment,
the level allowed by the Mexico's Ministry of Finance and Public
Credit (MFPC). Only in 2003 did the firm make its first foray into oil
exploration since the 1970s, a difficult task since Cantarell had peaked
and entered decline at the same time. The advent of the post-Cantarell
period opened discussions about the reform of Pemex.
The difficulties faced by Pemex in securing increased investment
and its weak ability to explore and exploit were used as justifications for
the energy reform of 2008, an antecedent to the current. Indeed, since
the 1970s Pemex has been the main supplier of revenue to the Mexican
state (over 30% of total budget revenue, reaching 39% in 2006,16
but it
has lacked the capacity to orient those revenues. This has resulted in
increasing technical, operational, and financial difficulties, raising the
possibility of opening the state monopoly to private capital. One very
meaningful aspect must be highlighted: despite the great process of
neoliberal reforms that took place under the presidency of Salinas de
Gortari (1988–1994), during which Mexico signed into both the WTO
and the NAFTA, Pemex continued as a state monopoly; that is,
economic reforms inspired by the Washington Consensus, which
represented an aggressive liberalization of the Mexican economy, had
little impact on Pemex. Thus, the current energy reform can be seen as
the culmination of the Washington Consensus agenda in Mexico, even
Table 1
Brazil: State and Petrobras share in O & G incomes, 2000–2014.
Source: Authors’ calculations based on Petrobras annual reports (lifting cost and investment), ANP (production and O & G prices), and Wulff (2011:28) (IR+CSLL+Dividends)
2000 2002 2004 2006 2008 2010 2012 2014
Petrobras Oil production (Mb/year) 447,660 530,510 519,834 616,956 647,880 689,278 696,892 749,581
Oil price (US$/b) 22 22 30 41 83 71 103 94
Oil incomes (US$ millions) 9,790 11,432 15,834 25,067 54,070 48,921 71,452 70,339
Petrobras Gas production (Mboe/year) 81,304 95,490 102,468 107,707 131,392 137,537 156,031 180,804
Gas price (US$/mil m³) 80 68 104 164 311 272 219 229
Gas Incomes (US$ millions) 1,064 1,063 1,726 2,869 6,643 6,088 5,545 6,741
O & G incomes (US$ millions) 10,854 12,495 17,560 27,936 60,713 55,009 76,997 77,080
Lifting cost US$/boe (1) 3 3 4 7 9 10 14 15
Lisfting cost US$/boe (2) 7 7 10 18 26 25 34 31
Other tax and contributions (US$ millions) 1,645 1,704 2,842 6,288 10,147 8,273 2,310 nd
Petrobras operating profit (US$ millions) (3) 9,267 10,617 15,207 23,168 53,506 46,724 65,157 63,529
Petrobras operating profit (US$ millions) (4) 7,045 7,988 11,543 15,155 40,397 34,653 48,198 48,543
Petrobras operating profit (US$ millions) (5) 5,400 6,283 8,701 8,867 30,251 26,379 45,889 nd
Government take (US$ millions) (6) 2,222 2,629 3,664 8,013 13,109 12,071 16,958 14,986
Government take (US$ millions) (7) 3,867 4,334 6,506 14,301 23,256 20,345 19,268 nd
Government take (6)/incomes 20% 21% 21% 29% 22% 22% 22% 19%
Government take (7)/incomes 36% 35% 37% 51% 38% 37% 25% nd
(1) Without government take.
(2) With government take which includes: royalties, special shares, bonus and allocation, and area occupancy rate.
(3) Income-lifting cost without government take.
(4) Income-lifting cost with government take.
(5) Income-lifting cost with government take-other taxes and contributions except 2011–2014, which do not include the payment of dividends.
(6) Royalties, special shares, bonus and allocation, and area occupancy rate.
(7)=(6)+other taxes and contributions.
162,6 m3
gas=1 boe.
14
Although the study is not available, its main conclusions have been published in the
media. See https://www.portosenavios.com.br/noticias/ind-naval-e-offshore/34764-
conteudo-local-prejudica-petrobras-diz-tcu
15
“For the granting of medical services to its employees and their families, Petróleos
Mexicanos has central hospitals, general hospitals, regional hospitals, satellite clinics,
outpatient medical units, medical units in workplaces and offices in the Centers for Child
Development (CENDI). In addition, as part of the support that Petróleos Mexicanos
granted to its employees, PEMEX has CENDI and schools (Article 123), where the
children of workers are taught." Pemex (2014:10).
16
Figures from MFPC.
J.M. Ramírez-Cendrero, M.J. Paz Energy Policy 101 (2017) 473–483
477
as, all across the hemisphere, the concept of post-neoliberalism
continues to be discussed and reflected upon (Berrios et al., 2010;
Dubash and Morgan, 2012; Grugel and Riggirozzi, 2012).
Based on the reflections enumerated in Section 2, we now turn to
those aspects of Mexican OFR that affect the appropriation and use of
oil revenues. In particular, Mexico represents a case of co-option by the
State of the revenue generated by the company for use outside the
company, which qualifies Mexico as being a rentier state. Here we seek
to discover the extent to which Pemex's role as a supplier of revenues to
the state budget works against the company's own interests and/or
against Pemex's intention of becoming a major actor with a development
role similar to that of Petrobras in Brazil. In that regard Pemex
(and the OFR into which it is incorporated) are very different from the
case of Brazil and Petrobras, and these distinctions are defining aspects
of the development style in Mexico.
3.2.1. Fiscal regime and distribution of oil revenues
Pemex is part of the Mexican government apparatus, into which it
appears to be subordinately embedded. The institutional framework
within which Pemex is integrated ensures that its operation be subject
to the guidelines and requirements of the State. Indeed, the federal
government oversees Pemex and has the power to set the company's
strategy. Unified control made it easier for the government to set and
administer this strategy using a variety of mechanisms, including
control over budgeting and regulation. Pemex remains 100 per cent
State-owned, and the idea of even partially privatizing Pemex remains
tremendously unpopular with the Mexican public (Stajanovski, 2012).
Although the company's broad lines of action are established by the
President of the Republic and the Congress, the most direct influence
over Pemex comes from several ministries in Mexico's vast bureaucracy,
each pursuing many goals and, at times, operating in conflict.
For example the energy ministry monitored all Pemex activities and
proposals even while the minister himself was Chairman of the Board.
The finance ministry is in charge of incorporating Pemex's budget and
usually occupies a seat on the Pemex board. The MFPC, in effect,
controls all the levers that affect the company's finances. It sets the
prices that Pemex charges domestically, proposes the taxes Pemex will
pay, and decides on the Pemex budget to be submitted for congressional
approval. Overall, MFPC provides strict financial oversight of the
company; but it does not provide strategic and technical oversight.
Therefore, the priority of the ministry lies in whether Pemex will
conform to the demands of the budget. We believe that this priority has
hindered the impulse of strategic decisions regarding the technology
used, or the establishment of a coherent plan for long-term growth.
What is the OFR within which Pemex operates? It should be noted
that until 2005, Pemex's budget was incorporated into the general
budget of the Mexican State for each fiscal year, according to the
Revenue Act of the Federation. Since that year, however, Pemex has
had a special budget, separate from the general state budget. Currently
there are three ways in which Pemex and its subsidiary organisms17
comply with their tax obligations: 1) by paying duties (upstream), 11 in
total; 2) through the payment of taxes (downstream), 4 in total; and 3)
through other contributions, including:
1. Ordinary Hydrocarbons Duty (DOSH)
2. Hydrocarbons Duty for the Stabilization Fund (DSHF)
3. Special Hydrocarbons Duty (DESH)
4. Royalty on Extraction of Hydrocarbons (DSEH)
5. Rights for Scientific and Technological Research on Energy
(DEIME)
6. Duty for Oil Control (DEFIPE)
7. Additional Hydrocarbons Duty (DASH)
8. Extraordinary Duty on Oil Export (DESEP)
9. Duty to Regulate and Supervise the Exploration and Exploitation of
Hydrocarbons (DRSEEH)
10. Tax Revenue from Oil
11. Special Tax on Production and Services
12. Added Tax
13. Foreign Trade Tax
Of all these duties and taxes, the most important are the DOSH and
the DSHF. The DOSH aims to move the oil revenue to the treasury and
applies entirely to Pemex's Exploration and Production. The DOSH
taxes the extraction of O & G with 71.5% of the total value of output less
the deductions applicable by law.18
Mexican tax law requires Pemex to
Table 2
Petrobras: total investments, 2000–2014 (billions of current US$ and percentage).
Source: Authors' calculations based on Petrobras annual reports and ANP
2000 2002 2004 2006 2008 2010 2012 2014
Investment in E
& P
2.9 2.9 4.3 7.0 14.3 18.6 21.9 24.2
Total
investment
4.2 6.4 7.4 15.5 29.1 43.4 42.9 37.0
Investmen in E
& P/O & G
incomes
26% 23% 25% 25% 24% 34% 29% 31%
Total
investments/
O & G
incomes
38% 52% 42% 55% 48% 79% 56% 48%
Fig. 2. Brazil: oil production, 1998–2014. Source: Authors' calculations based on data
from ANP.
Fig. 1. Petrobras: investments by sector, 1999–2014 (percentage of total). Source:
Petrobras annual reports.
17
These being Pemex Exploración y Producción, Pemex Corporativo, Pemex
Refinación, Pemex Gas y Petroquímica Básica, Pemex Petroquímica, and Pemex
Comercio Internacional.
18
These deductions are equivalent to 100% of the exploration expenditure, 16% of the
J.M. Ramírez-Cendrero, M.J. Paz Energy Policy 101 (2017) 473–483
478
make deliveries to the treasury on a daily and weekly basis.19
Meanwhile, the DSHF must be paid by Pemex Exploration and
Production as long as the weighted average price of a barrel of oil is
above US$22. The tax rate applied varies between 1% and 10%, as
prices evolve between US$22 and US$31. Because the price in recent
years has remained consistently above US$31, the applied rate has
remained at 10%.
With these tax rates, the DOSH makes up 85% of payments by
Pemex to the Mexican State, and DSHF 11%, so that both together
represent 96% of Pemex's tax burden, according to 2012 data.20
This
charge does not allow Pemex to dispose autonomously of income that it
generates, because these payments to the State involve the transfer of
almost all its benefits. That is the mechanism through which the
Mexican government enjoys access to oil revenues.
The evolution of the income of Pemex, its profit margin (before
taxes), and payments made to the State are given below.
Tables 5–7 show that practically all the profits generated by Pemex
are used to pay taxes and duties, revealing the chief role of Pemex as a
revenue-supplying entity for the Mexican state. Indeed, that flow of
payments to the State – higher than the company's own profit margin
in many years – escapes from company management and use for the
productive or commercial functions of Pemex.
Therefore, what we have is a fiscal regime conceived to channel
virtually all oil revenues to the State, which results in the high
weighting of Pemex payments in terms of overall state revenues.
These two mutually reinforcing aspects reveal the rentier character of
the Mexican state and the instrumental role that Pemex is required to
play. All this will have consequences for the behavior of the company
itself, especially in its investment performance.
This situation, among other aspects, helps to explain the energy
reform approved in December 2013. Pemex's role as a revenuesupplying
entity for the Mexican state prevents its autonomy in the
management and use of hydrocarbon revenues. It is the Mexican state
that establishes how those revenues are to be used. Thus, the budgetary
needs of the State permanently relegate investment priorities.
The aims for energy reform are clear: the government seeks private
investment to boost oil and gas exploration and production. In
particular, the government hopes that private investors will assist the
state-owned petroleum company Pemex in exploiting future fields,
especially as regards Mexico's promising shale oil and gas fields and its
deep-water oil resources. Furthermore, Pemex is to become a “stateowned
productive company” with greater independence from the
Mexican government, which will nevertheless retain a degree of control
over Pemex's operations. Therefore, the reform introduces two important
new features: firstly, it will allow the participation of private
companies through exploration and exploitation contracts; and secondly,
Pemex will convert into a productive enterprise with greater
autonomy. With these two new features, Mexican state expects to
recover the production capacity lost in recent years while demonstrating
official mistrust that Pemex can act successfully alone. The
Cantarell field is exhausted, and new fields will prove more difficult
to exploit, either because they are located in deep or ultra-deep water,
or in shale rock (requiring fracking techniques), or else because they
are mature fields where oil reserves are under lower pressure and more
resistant to extraction. All these fields require a technical and financial
capacity that Pemex currently lacks (Alvarez and Fabián, 2015).
To establish the participation of private companies, the following
types of contracts have been made available (Adrian Lajous, 2014):
Service contracts: contractors deliver all production to the government
in exchange for a cash payment established in the contract.
Profit-sharing/Production-sharing contracts: contractors recover
their costs and keep a percentage of production or profits. In exchange,
contractors must pay certain exploratory-phase fees and royalties.
License contracts: while reserves in the ground remain State
property, contractors receive the hydrocarbons in-kind at the wellhead,
in exchange for some cash payments (including exploratory-phase fees,
royalties, and a percentage of the operating profits).
These contracts will be granted only to Mexican companies.
Therefore, foreign investors must incorporate Mexican entities in order
to channel their investments. The reform also sets out that contractors
will be required to procure a percentage of their goods and services
from Mexican providers (with the minimum percentage to increase
gradually, from 25% in 2015 to 35% in 2025).21
However, many doubts remain about the power of this energy
reform to truly change the position and role of Pemex, because the
Table 3
Brazil: O & G proven reserves, 1998–2014.
Source: ANP
1998 2000 2002 2004 2006 2008 2010 2012 2013 2014
Gas (millions m3
) 244,547 326,084 347,903 364,236 423,003 459,187 457,960 471,095
Petróleo (MMbl) 7,357 8,465 9,805 11,243 12,182 12,801 14,246 15,314 15,544 16,184
Table 4
Petrobras Leverage (millions of current R$), 2006–2014.
Source: Petrobras. Data available online at:
2006 2007 2008 2009 2010 2011 2012 2013 2014
Net Debt 18,776 26,67 48,824 71,863 61,007 103,022 147,817 221,563 282,089
Net Capitalization 116,307 140,524 187,189 240,311 399,106 452,031 514,119 570,897 592,811
Net Debt/Net Capitalization % 16 19 26 30 16 24 28 39 48
Short-term Debt / Total Debt % 28 23 21 15 13 12 7 7 9
http://www.investidorpetrobras.com.br/en/debt/indebtedness-and-leverage
(footnote continued)
costs of developing and operating fields, and the 5% of the expenditure on pipelines,
transportation, and storage of oil.
19
In particular, Article 7 of the Law of Federal Revenue for Fiscal Year 2013 provides:
“A cuenta del derecho ordinario sobre hidrocarburos (…), PEMEX Exploración y
Producción deberá realizar pagos diarios, incluyendo los días inhábiles, por 634 millones
525mil [sic] pesos durante el año. Además, el primer día hábil de cada semana del
ejercicio fiscal deberá efectuar un pago de 4mil 453 millones 880mil [sic] pesos”.
Original in Spanish.
20
Data online at http://www.hacienda.gob.mx.
21
In July 2015, the first bidding round was decided. The results were disappointing,
since only two contracts (out of a planned 14) were assigned for the exploration and
exploitation of oil in the south of the Gulf of Mexico. These two contracts were won by a
consortium formed by the private Mexican company Sierra Oil & Gas along with Energy
Talos (U.S.) and Premier Oil (United Kingdom). Undoubtedly, the situation of the global
oil market, characterized by falling prices, has harmed Mexican interests.
J.M. Ramírez-Cendrero, M.J. Paz Energy Policy 101 (2017) 473–483
479
reform does not establish a new oil regime. We believe that in the
Mexican case, a change of fiscal regime is the most significant
challenge, rather than the establishment of new conditions for the
participation of private companies (Lajous, 2014). The results of the
participation of private companies will depend on the type of contract
that they sign and their subsequent compliance (to be analyzed in
coming years). So long as a comprehensive reform of the Mexican
hacienda, or tax system, is not effected, Pemex will remain the main
source of income for the Mexican state and will fail to achieve its
operational objectives.
3.2.2. Use of oil revenues
Having clarified the criteria for allocation of oil revenues, largely
monopolized by the State, we will examine the use made of it.
Specifically, we are interested in this revenue's relationship with
Pemex investments. As we have seen, the tax treatment of Pemex is
the mechanism by which the State accesses control of oil revenues. This
means that the tax burden on Pemex's income is very high, peaking in
2013 (at 64.1%, see Table7, or well above that of Petrobras in Brazil,
which accounts for just 25% (Table 1). Pemex's tax burden has
hindered its ability to respond to changes in the international markets.
In effect, the sharp drop in oil prices that began in the second half of
2014 has reduced export income (although a bigger drop in revenue is
still expected in the years to come). As shown in Table 6, the profits
registered before taxes fell by more than 30% in 2014. When the tax
burden is also considered, the result after taxes fell from −170.1 billion
to −256.6 billion Mexican pesos – the largest losses in Pemex's history.
Undoubtedly, Pemex is in a worse position than other oil companies
in terms of mounting ambitious investment strategies. Indeed, despite
having obtained substantial resources derived from its total sales, with
revenue doubling between 2001 and 201422
(Table 5), Pemex's
productive investment has been insufficient to face the energy challenges
of the country. Next we look at the evolution of that investment
as a percentage of income, and the allocation of investment among
various destinations.
As shown in Table 8, the investment during the period has
represented a growing percentage of revenues. Although the sub-period
2009–2014 exceeded 20% on average, it is far from the 65.8% annual
average registered by Petrobras for the same period (Table 1). Even if it
meets the forecasts of its 2013–2017 business plan, which speaks of
reaching a level of 25% (Pemex, 2013), Pemex would be far behind
Petrobras in this respect. In any case, this upward trend reflects the
interest of Pemex in stabilizing its declining production, reducing the
rate of decline of the main fields, and increasing the level of reserves, as
has been recognized by the oil company itself (Pemex, 2013).
Regarding the higher investment during the period analyzed, the
introduction in 1997 of Pidiregas had great importance. Pidiregas
was an instrument for public investments, but resorting to private
financing. The growing investment was therefore financed by indebtedness,
coming to represent 39% of Pemex's total investment in 1998
(the first year in which the Pidiregas mechanism was used) and 88% in
2008 (the final year of Pidiregas) (Stajanovski, 2012).23
The orientation of investments (Fig. 3) shows its concentration in E
& P, especially exploitation, with a percentage close to 90%. The reality
shown by Fig. 3 is evidence of Pemex as a company increasingly
focused on upstream activities, with only residual investment efforts in
downstream activities or industrial development. In other words,
Pemex has given priority to oil and gas production (exploitation of
fields) to increase oil revenues (State-oriented) over other strategies
such as energy self-sufficiency (refining potential) or productive
diversification (petrochemical priority).
The most crucial element in understanding the investment behavior
of Pemex is its role within the Mexican Hacienda, or revenue system.
This role is so important that it causes Pemex to distort its own
performance as a company. This will have implications for the
declining trend in production and, above all, in reserves (see Figs. 4
and 5).
In both cases, despite the investment priority to E & P, both
production and reserves (proven reserves, mostly) have not stemmed
their decline in recent years. This mounting weakness of Mexico in
Table 5
Pemex: income, 2001–2014 (billions of current US$).
Source: Authors' elaboration, using data from Pemex (2013) and Pemex (2015)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2104
Domestic market 16 16 21 29 39 47 50 48 44 55 56 57 62 64
Export 33 31 35 40 47 50 55 50 36 48 55 52 49 43
Total 49 47 56 69 86 97 105 98 80 103 111 109 111 107
Table 6
Pemex: profit margen before taxes, 2004–2014 (billions of current Mexican pesos).
Source: Pemex (2015)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
459.3 506.1 628.1 658.9 659.6 452.0 607.6 767.7 905.2 694.8 480.5a
a
32.6 billions of US$.
Table 7
Pemex: payments by the company to the State in duties and taxes, 2004–2014 (billions of current Mexican pesos and percentage).
Source: Pemex (2015)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Billion of current Mexican pesos 474.3 580.6 582.9 677.3 771.7 546.6 654.1 874.6 902.6 864.9 746.1a
payments/incomes 60.9 62.8 55.7 59.1 58.2 50.0 51.5 56.1 63.3 64.1 47.4
a
50.7 billions of US$.
22
Despite suffering heavy oscillations.
23
The acronym Pidiregas translates as “long-term budget deferred infrastructure
projects” which are, at their core, entirely debt-financed; and its extended use by the
State was not exempt from polemics and critiques.
J.M. Ramírez-Cendrero, M.J. Paz Energy Policy 101 (2017) 473–483
480
terms of production and especially reserves was a key argument that
helped promote the energy reforms of 2008 and 2013. As mentioned,
investment demands have increased in recent years, especially since
the Cantarell oil field reached its peak. For the better part of three
decades, Pemex was able to rely on plentiful, easily accessible crude oil
flowing from the Cantarell oil field, long the second-largest productive
field in the world and the primary reason behind Mexico's successful
transformation into a major oil exporter.24
Cantarell's production
peaked in 2003–2004, when it represented 60% of Pemex's total
production. In the years since, Pemex has not been able to forestall
the field's decline, and productivity has dramatically decreased, forcing
the company to face a potential crisis of reserves and production. It is
very probable that Mexico still has huge hydrocarbon resources under
the deep waters of the Gulf of Mexico. But these kinds of fields have yet
to be carefully explored, let alone developed, because Pemex lacks the
necessary deep-water technology to access them. And this challenge
makes the need for investment even greater.
Pemex's analysis reveals some crucial aspects of their performance
that allow us to better understand the downward trend of their
productive potential and the size of their reserves. The information
available and most publicized studies reveal Pemex as captive to
Mexico's Hacienda, as a "collector" instrument that has benefited from
the evolution of prices, allowing the company to compensate for the
weakness of production. The “collector” character of Pemex erodes its
performance as an oil company, affecting the development of reserves
and production thanks to investment weakness. This, therefore, is the
function of Pemex in terms of Mexico's development style, the aspect
from which the oil situation in Mexico must be addressed. The (rentier)
State needs Pemex to obtain revenues, and this goal takes priority over
all other energy or industrial targets. Only with the release of Pemex
from its “collector” function can other goals be addressed. Any strategy
for revitalizing Pemex would require advance fiscal reform to reduce
dependence of the State on company revenues. The tax treatment of
Pemex needs to be based on the concept of a "public company with
productive character", as was established by the Pact for Mexico.25
This
important aspect implies a tax rate on profits that would allow Pemex
to reinvest in productive projects targeting not only the extraction of
crude oil (both conventional and unconventional – deep water, shale
gas, or shale oil), but also in projects to develop petroleum and
petrochemical processing, infrastructure for distribution, transport
and storage, and research and development. Therefore, such a fiscal
change would be a necessary condition for attaining the full modernization
of Pemex. So long as the fiscal equation does not change,
conditions will not allow Pemex to actually become a "public company
with productive nature", in order to make the sector an "engine of
economic growth through attracting investment, technology, and
training value chain", as is established by paragraph 2.5 of the Pact
for Mexico.
Finally, after analyzing the cases of Petrobras and Pemex, we
directly compare the most important indicators of both companies to
Table 8
Pemex: total investments, 2002–2014 (billions of current US$ and percentage).
Source: Authors’ elaboration, using data from Pemex (2013) and Pemex (2015)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total investments 8 10 10 11 13 15 18 19 21 22 24 22 24
Investments/incomes 17.0 17.9 14.5 12.8 13.4 14.3 18.4 23.8 20.4 19.8 20.7 20.2 22.4
Fig. 3. Pemex: investments by sector, 2001–2014 (percentage of total). Source: Pemex
Statistical Yearbook 2012 and Pemex (2015).
Fig. 4. Pemex: O & G production, 2002–2014 (thousands of barrels of oil equivalent
produced daily). Source: Authors’ elaboration, using data from Pemex (2015).
Fig. 5. México: O & G total reserves, 2002–2014 (billions barrels of oil equivalent).
Source: Pemex (2015).
24
This largely served to reinforce the State’s financial dependence on Pemex and to
discourage investment in exploration, infrastructure, and new technologies for other
producing fields (Stajanovski, 2012).
25
The Pact for Mexico (December 2012) is a document signed by the President of
Mexico and the three major political parties (PRI, PAN, and PRD) in which are
established 95 general commitments to promote the economic, social, and political
modernization of the country.
J.M. Ramírez-Cendrero, M.J. Paz Energy Policy 101 (2017) 473–483
481
provide more support for the following conclusions.
Brazil (Petrobras) Mexico (Pemex)
Government
take/in-
comes
Government take represents
between 25%
and 50% of revenues, albeit
with a clear declining
trend in recent years.
Government take is
the majority share of
the incomes, between
50% and 65%. Stable
trend throughout the
period but with uncertainty
due to deterioration
in the performance
of the company
from 2014.
Total invest-
ment/in-
comes
Investment represents a
high percentage of revenue,
consistently over
50% with peaks of 80%.
This trend continues
throughout the period,
although with variations.
Investment represents
a very low
percentage of revenue,
remaining under
20% during the period,
albeit with a slight
increase in recent
years.
Evolution of
proven re-
serves
(2002–
2014)
193% increase in proven
reserves of gas 165% increase
in proven reserves
of oil
41% drop in the proven
reserves of oil
and gas
Source: Tables 1–3, 5, 8, and Fig. 5.
4. Conclusions and policy implications
The analysis of how OFR affects the E & P activities of Petrobras and
Pemex in the O & G industry allows us to reach four conclusions
consistent with the findings mentioned in section two:
First, analysis of the OFR should include both the direct and
indirect mechanisms of revenue capture by the NOC and the development
strategy, which strongly affects the use of those revenues.
Although the emphasis of certain institutional reforms is set only in
the direct mechanisms, the indirect mechanisms can be more crucial to
the performance of the NOC and industry.
Second, we have found that the differences between the Brazilian
and Mexican OFRs come as a result of the different roles assigned to
the respective NOCs in the development strategy. In this sense, the role
of the NOC is consistent with the role of the State in either development
strategy. Again, this shows that, although the emphasis of certain
reforms is to modify the ownership structure of the industry, this
cannot be a decisive factor in improving NOC performance.
Third, the analysis shows that, as pointed out by the NOC literature,
while the achievement of “national” and “commercial” objectives will
determine the performance of an NOC, these objectives need not be
incompatible, or in a situation of permanent subordination of one to
the other. As demonstrated by the Petrobras case study, it is possible to
achieve an interdependent relationship between both objectives, but
only in a scenario of high oil prices. Undoubtedly, periods of high prices
guarantee profitability thresholds that facilitate both objectives, but do
not necessarily strengthen the NOC. Moreover, the Brazilian model is
far from “ideal” and suffers its own contradictions. The model is based
on the significant participation of Petrobras in E & P activities, which
require the very high investments that triggered the company's growing
debt. This has generated a debate around what would be the most
appropriate orientation of Petrobras investments. In fact, some refining
projects have progressed very slowly in recent years. In addition, local
content measures have raised lifting costs, and the company's shares
have experienced a devaluation interpreted by some analysts as an
expression of the limits of the model. In addition, since the end of our
period of study, these limitations have been compounded by corruption
and other factors external to the OFR, such as falling oil prices.
Nevertheless, these changes in circumstances do not entirely invalidate
the viability of the Brazilian OFR or the lessons that can be drawn from
it.
Fourth, the case of Mexico evidences how the prevalence of
"national objectives" (in this case tax collection) hampers the potential
of the NOC. This situation is not being challenged in the current energy
reform, casting doubt on the likelihood that Pemex will become a
productive, innovative, and dynamic company able to stimulate the
productive transformation of Mexico, as stated in the Pact. Two
objectives of the Mexican state – that Pemex will continue as a
productive enterprise and contribute as before to the public budget –
are highly incompatible.
We must also recognize certain limitations of our work, derived
from the parameters of the article extension: i) First, the analysis has
focused on the later development stage of both companies, but, a
longer-term perspective would be useful for understanding the development
of technological capabilities by Petrobras (key to its current
exploration success) as well as the reasons for Pemex moving to a
rentier role some decades ago; ii) In addition, there are other variables
to explain the differences between Brazil and Mexico that are barely
considered in this work, including such critical issues as the international
context, especially in oil prices, the origins of the NOC as an oil
exporter or importer, and the geographical locations of O & G reserves.
Undoubtedly, these factors have also influenced the role assigned to
both companies in the development strategies of their countries, as well
as the OFR that has conditioned its performance.
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