OREANDA-NEWS. The Mexican government has thrown a financial lifeline to troubled state-owned oil firm Pemex with a cash injection of 73.5bn pesos ($4.2bn) and a Ps50bn tax cut. The cash injection will provide the firm with much-needed liquidity while the tax adjustments lay the groundwork for a stronger balance sheet.

Pemex executives have complained that the company's fiscal regime, overhauled in 2014 as part of an energy reform before oil prices dropped, has not been adapted to the current crude price scenario. Under the tax modifications, the company can now make greater cost deductions for exploration and production in onshore and shallow-water areas, the finance ministry says.

The new deduction cap for shallow-water areas is set at a minimum of $6.10/bl of oil equivalent (boe/d) and a minimum of $8.30 boe/d for onshore areas. The deduction cap is a percentage of the production value in the current regime, established under the energy reform that ended Pemex's long-held monopoly. Mexico's crude export basket fell by over 48pc to $24.48/bl between February 2015 and February 2016, hurting the company's finances.

The government's rescue package took shape as part of an agreement with Pemex to pay overdue debts to contractors and providers. The company plans to use the cash injection to reduce and normalise payments to suppliers andcontractors for 2016. It then aims to settle all outstanding payments for the 2015 fiscal year, although it will also use a $15bn peso credit line granted by domestic financial institutions to do this. Business council CCE says Pemex owes contractors and suppliers a combined Ps120bn. Pemex this year announced a Ps100bn cut to its 2016 budget, which new chief executive Jose Gonzalez Anaya is working to implement.