Mexico's Energy Reform - New Legal Framework
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Transcript of Mexico's Energy Reform - New Legal Framework
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8/22/2019 Mexico's Energy Reform - New Legal Framework
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Unidad de Asuntos Internacionales y Promocin de Inversiones
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Unidad de Asuntos Internacionales y Promocin de Inversiones2
Forward-looking statements
and cautionary notes
This national energy sector presentation contains forward-looking statements. Statements that are not historicalfacts, including statements about our beliefs and expectations, are forward looking-statements. These are good faith
statements based on current plans, estimates and projections and therefore you should not place undue reliance
on them. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to
update publicly any of them in light of new information or future events. Forward-looking statements involve inherent
risks and uncertainties. These risks and uncertainties include crude oil price volatility; production, equipment, and
transportation risks inherent in the oil industry; environmental regulations in Mexico; actions of the Mexican government
with respect to our operations, budget, taxation, commercial activities, control of hydrocarbon reserves, or debt service
payments; any limitations on exports resulting from agreements of the Mexican government; and economic, political,
and foreign exchange risks affecting Mexico. These risks and uncertainties are more fully detailed in Pemex most
recent Form 20-F filing with the US Securities and Exchange Commission and the Pemex Prospectus filed with the
National Banking and Securities Commission (CNBV) and available through the Mexican Stock Exchange. These
factors could cause actual results to differ materially from those contained in any forward-looking statement.
The US Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to
disclose only proved reserves that a company has demonstrated by actual production or conclusive formation teststo be economically and legally producible under existing economic and operating conditions. We use certain terms in
this presentation, such as total national reserves, probable reserves and possible reserves, that the SEC's guidelines
for individual companies strictly prohibit from including in filings with the SEC. Investors are urged to consider closely
the disclosure in the Mexican state owned company Pemex Form 20-F, File No. 0-99, available from them at
www.pemex.com or Marina Nacional 329 Floor 38 Col. Huasteca, Mexico City 11311 or at (+52 55) 1944 9700. You
can also obtain this Form from the SEC by calling 1-800-SEC-0330.
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I. The road to Mexicos energy reform
II. The reform in brief
1. The reforms two pillars
2. Affected energy laws and bills3. New provisions in the energy laws
III. Expected results
IV. Conclusions
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I. The road to Mexicos energy reform
II. The reform in brief
1. The reforms two pillars
2. Affected energy laws and bills3. New provisions in the energy laws
III. Expected results
IV. Conclusions
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Unidad de Asuntos Internacionales y Promocin de Inversiones 5
The Office of the President requested in 2007 a diagnose of Pemexsoperations.
The diagnose, prepared by the Secretariat of Energy, identified two main
areas of concern:
1. Challenges internal to Pemex
2. Challenges associated with recent trends in the global
oil industry
Pemex has operated under a legal framework which has
not been revised since the end of the 1970s.
Source: Sener with data from the approved reform initiatives
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1. Challenges internal to Pemex
Production drop
Reserves decrease
Reduced restitution rate
Low field recovery rate
Growth in imports of refined products
Insufficient transport, storage and distribution infrastructure 6
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2. Challenges associated with recent trends in the
global oil industry
Lack of oil fields with low complexity easy oil is no longer available
Rise in production costs
Insufficient human capital
Transformation in the infrastructure industry
The need to advance in the process of energy transition, taking advantage
of renewable sources of energy and energy efficiency
7
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Reform initiatives discussions at Congress
May
Mar 2008
Jun
Jul
Aug
Sep
Oct
Nov
Apr
Senate forums
May 13th through July 22nd: The Senates discussion forums
take place
2007 President Calderon requests a Pemex diagnose
March 31st: Senerpublishes the Diagnose of the national oil
industry
April 8th: The Executive Power delivers the Senate reform
proposals associated to the oil industry
May 19th: The Executive Power sends a proposal to the Senate
with a new fiscal regime for Pemex for complex oil fields
July 23rd: The PRI presents its proposal for an energy reform
August 13th: The PVEM presents its proposal on renewable
sources of energy
August 25th
: The FAP presents its reform initiative
October 23rd through 28th: THE CONGRESS APROVES THE
LAW AND REFORM INITIAVIVES
April 9th: The Senate initiates the discussion to celebrate a
national debate with the topic of an energy reform
June 23rd through 27th: The National University (UNAM)
organized forums on the energy reform
August 20th: The PRI modifies its Party Statements on energy
matters
September 2nd: Senators from the PAN present an initiative
for a new law on sustainable use of energy
October 9th through 23rd: The Congress discusses the
different reform proposals
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I. The road to Mexicos energy reform
II. The reform in brief
1. The reforms two pillars
2. Affected energy laws and bills3. New provisions in the energy laws
III. Expected results
IV. Conclusions
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Regulator strengthening and
change in Fiscal Regime
To increase
investment
capacities
To incorporate
State of the Art
technology
Oil pillarCHALLENGES
To increase
execution capacities
and efficiency
Flexible contracts
Management autonomy Transparency and
accountability
Pemex
strengthening
CHANGES
National content
promotion
To achieve
the Energy
Transition
Transition
pillar
Renewables
Sustainable energy
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I. The road to Mexicos energy reform
II. The reform in brief
1. The reforms two pillars
2. Affected energy laws and bills3. New provisions in the energy laws
III. Expected results
IV. Conclusions
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Eight energy laws and bills new or reformed-
constitute the essence of the reform
Promotion of renewable sources of energy and thesustainable use of energy:
1. New Law for the Sustainable Use of Energy
2. New Law for the Use of Renewable Energy and the Financing of the Energy
Transition
Better strategic planning and control capacities:3. Article 33rd of the Federal Public Administration Organic Law (new attributions to
SENER)
4. Law of the Energy Regulatory Commission (CRE)
5. New Law of the National Hydrocarbons Commission (CNH)
Pemex strengthening:6.-New Law of Pemex
7. Regulatory Law of the Constitutional Article 27 relating to Oil Matters
8. Law of Federal Rights
Source: Sener with data from the approved reform initiatives
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I. The road to Mexicos energy reform
II. The reform in brief
1. The reforms two pillars
2. Affected energy laws and bills3. New provisions in the energy laws
III. Expected results
IV. Conclusions
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Unidad de Asuntos Internacionales y Promocin de Inversiones 14
Created with the purpose ofpromoting the use of sustainable energy
and energy efficient processes and activities, from exploitation to
consumption
Creates the National Commission for the Efficient Use of Energy
(CNUEE, previously Conae) and mandates government institutions into
energy efficiency
Gives CNUEE regulator attributions
1. Law for the Sustainable Use of Energy
Source: Sener with data from the approved reform initiatives
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Created to promote the use of the renewable energy sources
and clean technologies to generate electric power with purposes other
than providing the public service of electric power, as well as to establish
the national strategy and the instruments for the financing of the energy
transition
Gives the Secretariat of Energy and the Energy Regulatory Commission
new attributions to make rules and strategies to include more
renewable energy in the national portfolio
Creates the Energy Transition and Sustainable Energy Use
Fund, with 3,000 million pesos per year from 2009 to 2011, to achieve the
energy transition
2. Law for the Use of Renewable Energy and the
Financing of the Energy Transition
Source: Sener with data from the approved reform initiatives
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Extends the capacity of the Ministry of Energy to promote private
participationin areas permitted under the Constitution, as well as to
grant, refuse, modify and, if applicable, to cancel the allocations for the
exploration and exploitation of hydrocarbons
Provides tools to develop long-term planning, energy efficiency and
renewable energy strategies,and to set the oil production platform and
the reserves policy
Supported by a new technical arm - the National Hydrocarbons
Commission
3. Amendment to Article 33rd of the Organic Law
of the Federal Public Administration
Source: Sener with data from the approved reform initiatives
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Expanded role and mandate of the Energy Regulatory Commission
Presentsandapproves terms and conditions
Regulation offuel oil, refined products and basic petrochemicals
First hand sale prices for fuel oil and basic petrochemicals
Improved guidelines for the alignment of market incentives in the
industrialization of hydrocarbons
When terms and conditions for first hand sales are in place, the seller
will have no discretion
Efficiency-based pricing
More certainty to participants and buyers
4. Amendment to the Law of the Energy
Regulatory Commission
Source: Sener with data from the approved reform initiatives
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Creates the National Hydrocarbons Commission (CNH)
Promotes the optimal use of oil wealth
The new entity will regulate and supervise the exploratory and
extractive activities associated with hydrocarbons (except for coal
bed methane)
It will also regulate transport and storage of hydrocarbons related
with exploration and extraction projects
The CNH will support Senerin defining the oil production platform
and the reserves policy
5. Law of the National Hydrocarbons Commission
Source: Sener with data from the approved reform initiatives
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Replaces the old Pemex Organic Law
Pemex transforms into a real company
New and explicit mandate: to add value
Freedom to adjust or redesign its organizational structure
Elimination of the requirement that the Finance Ministry approves investment
projects and debt, and greater flexibility in the setting of budgetary priorities
Rewards linked with results
Procurement and work schemes determined by the company
Independent Counselors
The Director General has freedom to appoint Directors of subsidiary firms
The Board may recommend the removal of the DG to the Executive Power
6. Law of Pemex (1/5)
Source: Sener with data from the approved reform initiatives
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6. Law of Pemex (2/5)
Transparency and accountability
Internal Control:
Auditing Committee (Independent Professionals)
Internal Control Organ to review the law obeying
Interaction between entities
External Control :
Citizen Bonds
Commissary
DG reports to Congress/Council/Commissary
Improved Transparency and EfficiencySource: Sener with data from the approved reform initiatives
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6. Law of Pemex (3/5)
Contracts
Efficiency focus
Contractors now have incentives to show their full capacity and skills
Pemex will use, when appriopriate, services support
Pemex will use, in other cases, contractors subjected to performance
payments
Increased execution capacity (operational and financial)
Third parties allowed in exploratoryworks
Additional investment capacity attracted by third parties
21
Equal conditions
comparison
Pressure to improve and
raise efficiency
Source: Sener with data from the approved reform initiatives
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6. Law of Pemex (4/5)
Change-oriented continuity and economical spill
Technological Research and Training funds
Banobras-CONACYT Fund with $4,000 Mdp per year (2012)
Research resources for:
v Hydrocarbons
v Renewable energy
National Content policy
Nafin Fund with $5,000 Mdp
Diagnose and Plan with goals of improving the national content
v Points in tenders that contemplate domestic content
v To reach a minimum 25% domestic content
Plan to incorporate small and medium companies
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Source: Sener with data from the approved reform initiatives
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6. Law of Pemex (5/5)
Additional provisions
Pemex will offer a stable supply and feedstock to the national fertilizer
industry, as well as long term contracts with fixed prices
Secondary petrochemical producers are granted permission to sell basic
petrochemicals only when they do not exceed 25% of the companyssales
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Strengthens the definitions of the oil industry, refining,
petrochemicals, transboundary oil fields and hydrocarbon sovereignty
Allows the exploitation of transboundary oil fields under the
rules defined by international treaties signed by Mexico and sanctioned by
the Senate
Redefines the characteristics of works and services contracts and
excludes any property over hydrocarbons, shared
production nor revenues over sales
Defines that specific regulation shall be elaborated and sanctioned
by the Energy Regulatory Commission and the National
Hydrocarbons Commission
7. Amendment to the Regulatory Law of
Constitutional Article 27 relating to Oil Matters
Source: Sener with data from the approved reform initiatives
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Modified in 2005, 2007 and 2008.
Base shifts from gross to net
Efficiency
Recognizes differences in oil returns:
Gas vs. oil
Chicontepec vs. deep waters
Follows international practices
8. Amendment to the Law of Federal Rights
Source: Sener with data from the approved reform initiatives
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I. The road to Mexicos energy reform
II. The reform in brief
1. The reforms two pillars
2. Affected energy laws and bills3. New provisions in the energy laws
III. Expected results
IV. Conclusions
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Additional economic growth due to the reform might add one percentage pointto projected annual economic growth
D.F. Mex Jal N.L. Mich Ver Tam Coah Chia Tab Cam Otros Nacional0
1,000
2,000
602
334259
193118
191121 110 98 63 33
1575
3697
3,697
Selected States
Employment
(thousand jobs accumulated by 2025)
Strengthening of economic
growth
(GDP additional points, %)
Net exports
Investmen
t
Public
spending
Total
The reform will provide an estimated 218 thousand new job
openings per year, reaching a total of 3.6 by 2025.
Source: Sener with prospective data**
The reform has the potential to generate additional
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2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
The Government and Pemex might receive 194 and 83 thousand million pesoseach of additional resources in the same period.
Additional investments with the reform
(thousand million pesos)
Government resources by origin
(thousand million pesos)
Average
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
0
100
200
300
400
500
600
700
800
900
1,000
The reform has the potential to generate additional
investments, averaging 70 thousand million pesos from
2010 to 2025.
Source: Sener with prospective data**
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2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Tasas
05-15
0
1
2
3
4
5
6
7
8
9
10
11
Crude oil production
(thousand barrels per day)
Crude oil production per capita
(barrels)
Pemexs new tools and control mechanisms will help
increase production levels and oil returns
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
0
500
1,000
1,500
2,000
2,500
3,000
3,5004,000
Source: Sener with prospective data**
Inertial
Inertial
With reform
With reform
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Production from new projects with thereform
(thousand barrels per day)
2009 2010 2011 2012 2013 2014 2015 2016 2017 20180
150
300
450
600
750
Aguas Profundas
Chicontepec
Cuencas del Sureste y otros campos
Production value from new
projects with the reform
(millions of pesos)
2009 2010 2011 2012 2013 2014 2015 2016 2017 20180
50,000
100,000
150,000
200,000
250,000
*MME: 75 d/b and exchange rate of 13 pesos per dollar
The reform will help in replacing declining fields with
prospective resources
Source: Sener with prospective data**
The reserve restitution rate is also expected to increase
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3P reserves discoveries with the reform
(million barrels of oil equivalent)
3P reserves restitution rates with the
reform
(percentage)
2009 2010 2011 2012 2013 2014 2015 2016 2017 20180
400
800
1,200
1,600
2,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180%
20%
40%
60%
80%
100%
120%
140%
0.740.7910.812
0.9
1.0821.0891.0981.0811.0931.114
1.142
The reserve restitution rate is also expected to increase
due to the reform
Source: Sener with prospective data**
Additional energy infrastructure will contribute to energy
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An increase in the refining, transport and storage activities will contributeto energy security by guaranteeing the timely supply and quality of refined
products.
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
0
200
400
600
800
1,000
1,200
1,400
1,600
Produccin con reforma Demanda interna
Reconfiguration of
existing refineries
New
refinery
New
refinery
New
refinery
New
refinery
Production and internal demand of
gasoline
(thousand barrels per day)
This will allow to maintain
a positive trade balance for
the sector.
Additional energy infrastructure will contribute to energy
security
Source: Sener with prospective data**
Due to the additional refining capacity the reform will allow
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Feedstock for the
petrochemical industry with
reform
(thousand million US dollars)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Feedstock includes light naphtha and propane.
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
0
20
40
60
80
100
120
140
Feedstock for the
petrochemical industry with
the reform
(thousand barrels per day)
Due to the additional refining capacity, the reform will allow
the provision of more feedstock for the petrochemical
industry.
Source: Sener with prospective data**
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Unidad de Asuntos Internacionales y Promocin de Inversiones 34
On October 28th, 2008, the Mexican Congress passed several amendments toMexican laws related to the energy sector.
1. Four law decrees
2. Four law amendment decrees
These amendments will enter into force as soon as they are published in the
Official Gazette
The amendments provide the necessary mechanisms to allow Mexico's state-
owned oil company (Pemex), and other Mexican energy authorities, to face thenew technological, economic and environmental realities of the world.
Their aim is to increase the production of oil, gas, byproducts, refined products
and reserves restitution rates, as well as to encourage the sustainable use of
energy and of renewable sources.
Executive summary
Source: Sener
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I. The road to Mexicos energy reform
II. The reform in brief
1. The reforms two pillars
2. Affected energy laws and bills3. New provisions in the energy laws
III. Expected results
IV. Conclusions
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Conclusions
Pemex faces a drop in the production rate, a drop in the reserves restitutionrate and the effects of a limited refining, transport, storage and
distribution infrastructure.
The world is facing several challenges derived from the lack of low complexity
oil fields, the need to change the sectors industrial organization to
embrace technological development and to move towards a sustainable energy
transition.
After a process that almost took a year, the different political forces in Mexico agreed
on a reform that allows the strengthening of Pemex and promotes energy
efficiency and renewable sources of energy:
Regulators strengthening to improve the sector planning and private investors
certainty Mechanisms to help Pemex evolve into a better company
Better internal and external control as well as transparency within Pemex
Efficiency-oriented flexible contractual schemes
A new Fiscal Regime for Pemex
Change continuity and economic spill
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Conclusions
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Ethylene XXI is a 100% private project to produce
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It is estimated that the Ethylene XXI project will generate between 2,400 and6,500 jobs during its construction and 3,000 permanent jobs.
The resulting production will reduce de petrochemical imports to have local
supply of 75% in high density polyethylene, 87% in low density polyethylene
and 11% in polypropylene.
Etileno Polietileno AD
y BD
Otros
productos
Polipropileno Total
13200
44002585
1650
21835
Ethylene XXI investment per line
(million pesos)
This equals 53% of the total investments
executed by the state and private investors
in the sector between 2000-2006.
Imports covered with Ethylene XXI
production(percentage from 2006 imports)
Polietilenos alta densidad Polietilenos baja densidad Polipropileno
0.75 0.87 0.11
Ethylene XXI is a 100% private project to produce
polyethylene.
Source: Sener
The new contractual schemes protect sovereignty
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Pemex payments addressed in contracts with physical or moral people willalways be in cash and will never transfer the hydrocarbon property, nor
production or profit shares.
Contractors may not register oil reserves as their own.
Contractual payments will follow a predetermined formula or scheme that will
allow performance incentives.
There will not be any contracts that include shared productionschemes nor strategic alliances in the exclusive and strategic sectors.
Signing contracts with a single contractor that unite exploration
and production activities in a determined area will be possible.
The new contractual schemes protect sovereignty
and give Pemex flexibility.
Source: Sener with data from the approved reform initiatives
Pemex will establish a strategy to support local
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Pemex will establish a strategy to support local
suppliers and contractor's development.
Pemex will establish a strategy to support national suppliers within theIntegral Strategic Business Plan. This strategy will include a diagnose
of the current scenario of local supply and yearly goals. Local content will
be, at least, 25%.
The strategy shall emphasize small and medium companys (PyMES)development. Pemex will present an annual purchase plan from this
sector.
Pemex will promote the strategy and propose policies and actions to
accomplish the goals.
The Federal Government, through SHCP, will create a Fund within Nafin to
support and finance Pemex suppliers and national contractors.
The Fund will receive 5 thousand million pesos in 2009 and 2.5thousand million pesos in 2010.
Source: Sener with data from the approved reform initiatives
The new law allows Pemex to use the excess
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The new law allows Pemex to use the excess
revenues from oil sales.
This law allows Pemex to gradually use the excess revenues from oilsales (in 6 years) and gives them the autonomy to manage their budget and
debt. 1st year: 20% of the excess revenues will be returned to Pemex (at least, 10 thousand million
pesos) and budgetary autonomy will be executed as long as Pemex respects the financial and
primary balances and there is no budget increase in personal services nor pensions.
2nd& 3rd years: 35% (at least, 11 thousand Mdp) from the excess revenues, budgetary
autonomy and the mandate to meet the Pemex Business Plan goals. From the 2nd year
on, Pemex has freedom to allocate debt, under the budgetary roof authorized by Congress.
During the 3rd year, Pemex shall put out bonds that represent 3% of the total debt and the primary
balance restriction is released.
4th& 5th years: 62.5% (at least, 14 thousand Mdp) and 75% (at least,15 thousand Mdp) from
the excess revenues and budgetary freedom, while meeting the restrictions for the previous
years. During the 5th year Pemex shall put out bonds that represent 5% of the total debt and the
pensions restriction is released.
6th year: 87.5% (at least, 15 thousand Mdp) from the excess revenues and 100% during the 7th
year; both years with budgetary freedom. Pemex must use the revenues to meet the Business
Plan goals (except in the 6th year), the financial balance and to avoid increase the personalSource: Sener with data from the approved reform initiatives