Fitch: Pemex may improve

Fitch Ratings reported the Mexican Congress recently approved a new fiscal regime for Pemex that should help improve the company's financial condition, support increased investment and strengthen its competitive position.

While the change in Pemex's fiscal regime is positive, there are still significant reforms that need to be made in the energy sector. The larger concerns are the need for changes in corporate governance, allowance for a potential equity offering, increased autonomy and an ability to enter into joint venture and partnerships, which may be very challenging politically, Fitch noted.

Without further reform, Pemex may have difficulty achieving its long-term exploration, development and production targets, the agency added.

The new fiscal law, which still needs to be signed by President Fox, will become effective in 2006 and applies to taxes on Pemex Exploration and Production (PEP) and is composed of three duties, Fitch said.

The agency said Pemex's ratings are supported by a strong pretax financial profile, sizable proven hydrocarbon reserves, an export-oriented profile, an attractive upstream cost structure, its fiscal importance to the sovereign and a dominant domestic market position.

These strengths are tempered by vulnerability to fluctuations in international commodity prices, its still substantial tax burden, imminent negative net worth position, large capital investment requirements and exposure to political interference risk, Fitch said.

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