Mexico Seeks Tax Similar to Brazil for Private Oil Producers

Mexico’s government will propose taxing private oil companies that partner with state-owned Petroleos Mexicanos at a similar rate as in Brazil and Colombia, Mexico’s deputy finance minister for revenue said.

The government plans to significantly reduce oil-drilling royalties paid by Pemex as the oil company is known, as soon as the energy overhaul is approved, Miguel Messmacher said in a telephone interview today, without elaborating. Once private companies are allowed into Mexican fields, they’ll get a similar tax treatment, he said.

President Enrique Pena Nieto sent a bill to Congress on Aug. 12 to arrest Mexico’s production declines by enticing private companies to develop oilfields in the country for the first time since 1938. The plan aims to lift growth that’s slower than the regional average and that the government forecasts will fall behind Brazil’s for the first time in three years.

The tax bill will be presented Sept. 8, Pena Nieto said yesterday. Specifics of the royalty and tax revisions will be provided in the bill, Messmacher said, without elaborating.

Pemex, the world’s fifth-largest crude oil producer, is headed for its ninth straight year of output declines, the Mexico City-based oil producer has said. The company’s taxes fund about 34 percent of the federal budget.

Mexico’s Finance Ministry lowered its forecast for economic expansion yesterday to 1.8 percent this year from 3.1 percent after exports to the U.S. slowed. The economy grew 1.5 percent in the second quarter from a year earlier, less than the 2.3 percent forecast in a Bloomberg survey.

Petrobras Taxes

Petroleo Brasileiro SA, which pumps more than 90 percent of Brazil’s oil and gas, paid production taxes of $17.91 dollars a barrel during the first half of this year. Brazil’s production taxes are partially linked to Brent oil prices.

Mexico’s tax bill would lower Pemex’s royalties and license fees, Finance Minister Luis Videgaray said in an article posted on the ministry website today. To partially compensate for lower fees, Pemex would start paying income tax on its drilling and exploration operations, he said, without providing details.

“It’s time to give Pemex a new tax regime,” Videgaray said. “A decision would be made whether the largest remaining resources are reinvested in the company or if a part is transferred to the Treasury as a dividend.”

To contact the reporters on this story: Adam Williams in San Jose, Costa Rica at awilliams111@bloomberg.net; Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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