Agreement Establishing General Provisions Regarding the Federal Government's Assumption of Pension and Retirement Payment Obligations of Petroleos Mexicanos and Its Subsidiary Production Companies

DOF: 24/12/2015

AGREEMENT Establishing General Provisions Regarding the Federal Government's Assumption of Pension and Retirement Payment Obligations of Petroleos Mexicanos and Its Subsidiary Production Companies

A seal bearing the National Coat of Arms, which reads: United Mexican States.- Ministry of Finance and Public Credit.

AGREEMENT 28/2015

GENERAL PROVISIONS REGARDING THE FEDERAL GOVERNMENT'S ASSUMPTION OF PENSION AND RETIREMENT PAYMENT OBLIGATIONS OF

PETROLEOS MEXICANOS AND ITS SUBSIDIARY PRODUCTION COMPANIES

LUIS VIDEGARAY CASO, Secretary of Finance and Public Credit, pursuant to the provisions of Articles 31, fractions V, VI, and XXIV, of the Organic Law of the Federal Public Administration; Transitory Third, third paragraph, of the Decree Reforming, Adding, and Repealing Various Provisions of the Federal Budget and Fiscal Responsibility Law and the General Public Debt Law, published in the Official Gazette of the Federation on August 11, 2014; Article 1, fraction I, of the General Public Debt Law; Article 2, first paragraph, of the Federal Revenue Law for the Fiscal Year 2015; and Article 6, fraction XXXIV, of the Internal Regulations of the Ministry of Finance and Public Credit, and

CONSIDERING

That Transitory Third of the Decree Reforming, Adding, and Repealing Various Provisions of the Federal Budget and Fiscal Responsibility Law and the General Public Debt Law, published on August 11, 2014, in the Official Gazette of the Federation (Decree), establishes that the Federal Government may assume a portion of the payment obligation for pensions and retirements currently being paid, as well as those corresponding to active workers of Petroleos Mexicanos and its subsidiary bodies recognized as of August 12, 2014, and actuarially registered in their financial statements, in accordance with the contractual stipulations in effect on that same date;

That pursuant to said provision, the Federal Government may assume a portion of such obligation provided that, within the year following the entry into force of the Decree, Petroleos Mexicanos: 1) reaches an agreement to modify the collective labor agreement applicable in Petroleos Mexicanos and its subsidiary bodies; 2) modifies the Work Regulations for Trust Personnel of Petroleos Mexicanos and its subsidiary bodies; and 3) implements an austerity program in spending;

That in terms of Transitory Third of the Decree, the aforementioned modifications must: 1) lead to a reduction in the payment obligations for pensions and retirements of Petroleos Mexicanos and its subsidiary bodies in the medium term; 2) establish, at a minimum, that pensions or retirements for new hires are financed under individual account schemes that allow portability of rights with the Retirement Savings System; and 3) establish a gradual adjustment to the parameters for determining pensions for active workers, including retirement age, to reflect changes in life expectancy, in order to align them with the parameters established in other pension and retirement systems of Federal Government institutions;

That, likewise, it was established as a requirement that a specific audit be conducted by the Superior Audit Office of the Federation regarding the labor liability of Petroleos Mexicanos and its subsidiary bodies, in order to identify the characteristics of the payment obligations for pensions and retirements, and the determinants of their evolution;

That in terms of Transitory Eighth of the Petroleos Mexicanos Law and by virtue of the agreements for the creation of the subsidiary production companies of Pemex named "Pemex Exploration and Production", "Pemex Industrial Transformation", "Pemex Drilling and Services", "Pemex Logistics", "Pemex Cogeneration and Services", "Pemex Fertilizers", and "Pemex Ethylene", published in the Official Gazette of the Federation on April 28, 2015, the subsidiary bodies were reorganized and adopted the nature of subsidiary production companies;

That on December 18, 2015, the General Director of Petroleos Mexicanos sent to the Ministry of Finance and Public Credit the letter DG/114/2015, in which it communicates and explains the acts and actions carried out by the company in terms of the Decree, as well as the reasons and grounds for which it estimates that the requirements were met and the objectives established in Transitory Third of the Decree were achieved, attaching the corresponding supporting documentation;

That in the aforementioned letter, Petroleos Mexicanos submitted a calculation of the amount of the reduction in the payment obligation for pensions and retirements at its charge resulting from the modifications made to the aforementioned collective labor agreement, including its union administrative agreements, and to the Work Regulations for Trust Personnel of Petroleos Mexicanos and its subsidiary bodies, which amounts to $186,482,286,000.00 (one hundred eighty-six billion four hundred eighty-two million two hundred eighty-six thousand pesos m.n.);

That after analyzing the documentation sent by Petroleos Mexicanos, it is considered that the company complied with the provisions set forth in Transitory Third of the Decree, as well as its objective, by achieving a reduction in the labor liability for pensions and retirements;

That the National Development Plan 2013-2018 in its section IV. Prosperous Mexico, within Objective 4.1. "Maintain the macroeconomic stability of the country" and Strategy 4.1.1. "Protect public finances against macroeconomic environment risks", provides as a line of action to promote the sanitization of the finances of state-owned entities;

That the National Development Financing Program 2013-2018 establishes, on the one hand, as part of Strategy 3.5 "Contribute to an improvement in the finances of dependencies and entities of the Federal Public Administration", the line of action 3.5.1 "Promote sound and prudent financial management of the Federal Public Administration" and, on the other hand, in Strategy 5.5 "Strengthen the Retirement Savings System to increase coverage and sufficiency of the country's various pension schemes", the Line of action 5.5.1 "Promote the strengthening, sustainability, and portability of the country's various pension systems (including decentralized bodies, state-owned entities, Federative Entities, and Municipalities) to transform their pension systems into sustainable systems that offer security to the worker";

That the report of the Superior Audit Office of the Federation, published in July 2015, highlights that Petroleos Mexicanos has a structural problem in its pension and retirement scheme that has caused the labor liability to grow due to the increase in pension benefits. Thus, the amount of said liability and its growth dynamics present elements that could negatively impact the financial stability of the entity in the medium term;

That in view of the foregoing, it is deemed convenient for the Federal Government to assume a portion of the payment obligation for pensions and retirements described in the first consideration of this instrument, up to an amount equivalent to the reduction of the labor liability for said concept, achieved by the company;

That for this purpose, this Ministry deems it appropriate that an independent pension expert review the calculation of the aforementioned reduction in the payment obligation, the methodology applied, as well as all other information that directly or indirectly impacts the savings reported by Petroleos Mexicanos, with the purpose of having elements that provide certainty and transparency regarding the amount of the obligation that the Federal Government will assume, and

That the third paragraph of Transitory Third of the Decree empowers the Ministry of Finance and Public Credit, taking into consideration the stability of public finances and the fulfillment of the objectives, strategies, and lines of action of the National Development Financing Program, to establish the terms, conditions, and amounts, to cover the portion of the labor liability assumed by the Federal Government, as well as to determine the financing mechanisms and payment schemes and the other general provisions necessary for its implementation, I have seen fit to issue the following

GENERAL PROVISIONS REGARDING THE FEDERAL GOVERNMENT'S ASSUMPTION OF PENSION AND RETIREMENT PAYMENT OBLIGATIONS OF

PETROLEOS MEXICANOS AND ITS SUBSIDIARY PRODUCTION COMPANIES

CHAPTER ONE

GENERAL PROVISIONS

FIRST.- These provisions aim to establish the terms, conditions, amounts, financing mechanisms, and payment schemes, through which the Federal Government, through the Ministry, will assume a part of the payment obligation for pensions and retirements currently being paid, as well as those corresponding to active workers of Petroleos Mexicanos and its subsidiary production companies, in terms of Transitory Third of the Decree.

SECOND.- For the purposes of these Provisions, the following shall be understood:

I.

Decree: the Decree Reforming, Adding, and Repealing Various Provisions of the Federal Budget and Fiscal Responsibility Law and the General Public Debt Law, published in the Official Gazette of the Federation on August 11, 2014;

II.

Banking Business Day: any day on which, according to the calendar determined and published by the National Banking and Securities Commission in the Official Gazette of the Federation, financial institutions provide services;

III.

Law: the Federal Budget and Fiscal Responsibility Law;

IV.

Federal Government Payment Commitment: the amount equivalent to the Validated Reduction, which the Federal Government will assume in terms of these Provisions;

V.

Obligation: the amount of the obligation at the charge of Petroleos Mexicanos and its subsidiary production companies, to pay the pensions and retirements currently being paid, as well as those corresponding to its active workers, recognized as of August 12, 2014, and actuarially registered in their financial statements, in accordance with the contractual stipulations in effect on that same date;

VI.

Validated Reduction: the amount determined by the independent expert referred to in Provision Fourth, equivalent to the reduction of the Obligation as a consequence of the modification to the collective labor agreement and to the Work Regulations for Trust Personnel of Petroleos Mexicanos and its subsidiary production companies;

VII.

Ministry: the Ministry of Finance and Public Credit;

VIII.

Securities: the credit instruments issued by the Federal Government in favor of Petroleos Mexicanos, which cover the amounts that will be delivered annually to cover the Federal Government Payment Commitment, and

IX.

UDIS: the Investment Units referred to in the Decree Establishing Obligations That May Be Denominated in Investment Units and Reforming and Adding Various Provisions of the Federal Tax Code and the Income Tax Law, published in the Official Gazette of the Federation on April 1, 1995.

THIRD.- The interpretation of these provisions for administrative purposes, as well as the resolution of matters not provided for therein, corresponds to the Pensions and Social Security Unit and the Public Credit Unit of the Ministry, within the scope of their competencies.

CHAPTER TWO

TERMS, CONDITIONS, AMOUNTS,

FINANCING MECHANISMS AND PAYMENT SCHEMES

FOURTH.- The Ministry will hire, in terms of applicable provisions, the services of an independent expert to review the calculation of the reduction to the Obligation, the methodology applied, the maturity profile of the Obligation, as well as all other information provided by Petroleos Mexicanos, which directly or indirectly impacts said calculation.

The amount resulting from such review will be the Federal Government Payment Commitment, which must be published by the Pensions, Social Security, and Public Credit Unit in the Official Gazette of the Federation.

The maturity profile of the Obligation reviewed by the independent expert will serve as the basis for establishing the applicable payment profiles for the issuance of the Securities.

The result of the review must be delivered by the independent expert within three months following the date of its hiring.

FIFTH.- The Federal Government Payment Commitment will be assumed by the Ministry through the subscription of the Securities, which will have the following characteristics:

I.

They will be denominated in national currency or in UDIS;

II.

They will have annual maturities on March 31 of each year, starting in 2017. In the event that the maturity date is not a Banking Business Day, payment will be made on the immediately following day;

III.

Their payment profiles, that is, the maturity dates and amounts, will correspond to the payment profiles validated by the independent expert pursuant to Provision Fourth, third paragraph;

IV.

They will be non-negotiable;

V.

They may or may not accrue interest, in which latter case it must be determined in accordance with the Federal Government's cost in similar term operations, and

VI.

The Ministry may prepay any of the Securities, in whole or in part, without penalty or premium, on any date, prior notice to Petroleos Mexicanos, as established in Provision Eleventh, and in terms of the valuation methodology determined by the Ministry itself.

SIXTH.- The Ministry may issue a number of Securities less than that corresponding to the payment profiles determined by the independent expert pursuant to Provision Fourth, summing the amounts corresponding to two or more maturities, if in its consideration such addition facilitates the subscription and operation of the Securities.

SEVENTH.- The Ministry may exchange the Securities for Certificates of the Federation Treasury or Government Development Bonds, in any of their modalities, when in its consideration it does not affect the stability of public finances nor the fulfillment of the objectives, strategies, and lines of action of the National Development Financing Program. In these cases, the Ministry will determine the terms, conditions, mechanisms, and other characteristics of the exchange.

EIGHTH.- All resources that Petroleos Mexicanos receives from the payment of the Securities must be destined to the payment of the Obligation.

Petroleos Mexicanos may not assign, transfer, contribute, encumber, give as guarantee, or in any other manner or modality negotiate the rights, nor the future cash flow derived from the Securities.

NINTH.- The Federal Government, through the Ministry, may assume up to one-third of the amount of the reduction of the Obligation reported by Petroleos Mexicanos and prior to having the result of the review established in Provision Fourth.

For this purpose, the Ministry may issue a credit instrument in national currency or in UDIS for the equivalent of $50,000,000,000.00 (fifty billion pesos m.n.) with maturity on December 31, 2050, which will be exchanged for the Securities that correspond, within 60 Banking Business Days following the date on which the Ministry has the Validated Reduction.

CHAPTER THREE

ADJUSTMENT TO THE AMOUNT OF THE SECURITIES AND PAYMENT MECHANISM

TENTH.- The amount of the Securities will be reduced in the event that future modifications to the collective labor agreement, its union administrative agreements, or to the Work Regulations for Trust Personnel of Petroleos Mexicanos and its subsidiary production companies, have as a direct or indirect consequence reversing or decreasing the Validated Reduction and/or increasing the amount of its liability for pensions and retirements, or whenever any act or fact by third parties other than Petroleos Mexicanos and its subsidiary production companies occurs, which has such a consequence.

Petroleos Mexicanos must communicate in writing to the Ministry when any of the circumstances provided for in the preceding paragraph is verified, within ten Banking Business Days following the date on which such circumstance occurs, in order to proceed to reduce the amount of the Securities up to an amount equivalent to the impact on the Validated Reduction.

For this purpose, Petroleos Mexicanos will carry out, within sixty Banking Business Days following, a review through an independent auditor in which the effect of the occurred circumstance on the amount of the Validated Reduction is proven, indicating its amount and the new payment profiles.

In the event of any non-compliance by Petroleos Mexicanos with this Agreement that cannot be compensated through the adjustment mechanisms provided for in this Provision or in the event that it has not destined the resources for the payment of the Obligation, Petroleos Mexicanos must reimburse the Federal Government the corresponding amount.

ELEVENTH.- Once the reduction of the amount, if applicable, in terms of Provision Tenth is effected, the Ministry will make the payment of the Securities according to the new payment profile, by credit to the bank account that Petroleos Mexicanos

had notified at least fifteen Banking Business Days in advance of the maturity date of each Security; account that must be exclusive for the receipt of said payments, as well as for the payment of the Obligation. In the event of not receiving the aforementioned notification within the stated period, the Ministry will suspend the payment and withhold the funds until Petroleos Mexicanos

cures the omission.

CHAPTER FOUR

FINAL PROVISION

TWELFTH.- The Ministry will inform the Congress of the Union in the corresponding report for the first quarter of each fiscal year referred to in Article 9 of the General Public Debt Law on the payments made in accordance with these Provisions and the adjustments, if any, that have been made.

Likewise, the Ministry will inform the Congress of the Union annually on the evolution of the Federal Government Payment Commitment, in the report corresponding to the fourth quarter of each fiscal year.

TRANSITORY PROVISIONS

FIRST.- These Provisions will enter into force on the day of their publication in the Official Gazette of the Federation.

SECOND.- On the same date of the subscription of the Securities in terms of Provision Fifth and, if applicable, of Provision Ninth, the Ministry must make the corresponding adjustments in the Expenditure Budget of the Federation for the fiscal year 2015 and in the Expenditure Budget of the Federation for the fiscal year 2016, respectively, in order to recognize as an expense the amount of the obligations assumed, in accordance with Transitory Third of the Decree and these Provisions.

For the purposes of the foregoing, Petroleos Mexicanos must request from the Federal Executive, through the Ministry of Energy, the specific budgetary mechanism.

Given in Mexico City, on December 22, 2015. - The Secretary of Finance and Public Credit,

Luis Videgaray Caso. - Signature.

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