Mubasher: Mexico will pump $3.6 billion into state-run oil firm Pemex, a move that would include tax cuts and debt refinancing and aims to shore up its finances and preventing a further credit downgrade.

The company, formally known as Petroleos Mexicanos, would receive $1.8 billion in pension liability monetisation within the framework of a new financial assistance plan for the Mexican firm, Thomson Reuters reported on Friday, citing officials as saying at a regular news conference.

However, the government will not take on new debt for Pemex, the officials said.

The Mexican state-owned oil company holds nearly $106 billion in financial debt, the highest among any of national oil company in Latin America.

Mexican Finance Minister Carlos Urzua said that the government would inject more capital for Pemex, if required.

Over time, taxes due from the company would fall and the capital injection will allow debt refinancing over the year, Urzua added.

“This will allow Pemex [...] to not need to take on new debt, just refinancing,” Urzua noted, pledging that the ministry will do “whatever it takes” to keep the company’s finances healthy.

It is worth noting that rating agency Fitch knocked down its rating for debt issued by Pemex by two steps last January.

The downgrade revision fuelled a weakness in the Mexican peso (MXN) and raised worries that further downgrades by Fitch and other credit ratings agencies could sharply increase Pemex’s financing costs, leading to dire consequences for the government.

Mexico’s President Andres Manuel Lopez Obrador did not provide full details on how Pemex’s lower tax bill would be financed and how an additional capital injection would be managed.

Nevertheless, he pointed to the efforts since last December, when he took office, to combat fuel theft in the country would save $1.6 billion.

“It’s injecting resources, it’s lowering the tax obligation [but] above all, it’s cleaning Pemex of corruption, and that will let us take the company forward,” Obrador said at the press conference.

After the announcement of the plan the Mexican peso weakened more than 0.5% against the US dollar.

Mexican oil production has declined by around half since reaching a high of 3.4 million barrels per day (bpd) in 2004.

The richest fields in Mexico aged, while Pemex failed to make new discoveries.