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Lopez Obrador says moving to restore order to Mexico fuel import markets

Highlights

Amendments would require companies to secure storage to obtain import permits

Permits could be cancelled by regulator under national security concerns

Bill resembles previously blocked proposals

Mexico City — Mexican President Andres Manuel Lopez Obrador said March 29 that he is trying to restore order in Mexico's fuel imports after years of corruption distorted the market.

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"Over 1,000 permits were granted in Mexico during the neoliberal administrations to import gasoline and diesel, many of which were never used, but were kept for speculation purposes, even avoiding payments of royalties for years," Lopez Obrador said during his daily press conference.

Lopez Obrador on March 26 sent an initiative to Mexico's Congress to modify the country's hydrocarbons law to "reorder economic activities in the energy sector to combat corruption, ensure supply, and protect the national economy and State revenues."

The modifications would make it harder for companies to obtain a permit for importing fuels as they would now be required to demonstrate they have five days of storage capacity in the country, either owned or leased. The bill would also allow Mexican regulators to cancel existing permits if the activity of the importer poses "imminent danger" to national security or if they are involved in contraband.

"We will honor contracts, but we will not grant any more permits; we need to protect Pemex to ensure supply," Lopez Obrador, noting that Mexico depends on imported fuel to meet its demand because of under investments in the national refining system. "We cannot continue depending on imported fuel," he said.

The bill, the latest move by the government in its quest to benefit the state company without changing the constitution, was not sent as a priority as other initiatives in the energy sector presented recently by Lopez Obrador, but it will be discussed March 31 by the lower house's energy commission. It is expected to be voted on in April.

The bill resembles an agreement in 2020 that aimed to change the rules for imports and exports of fuels and petrochemicals, but it also introduces the elimination of permits if a company fails to fulfill the storage requirement, Diego Campa, a partner specializing in Mexico's energy sector with law firm Campa & Mendoza told S&P Global Platts March 29.

The bill could also indirectly impact exploration and extraction activities because operators would be required to obtain a permit to domestically commercialize production and an export permit to send any production out of the country, Campa & Mendoza said in a report to clients.

Although the bill may be hardening the requirements for those trying to obtain or keep a permit, it is also intended to tackle irregular imports, and illegal sales, a real problem identified by the industry, Carlos Vallejo Galvan, a lawyer with the Mexican association of energy regulated companies told Platts, also on March 29.

The move could serve as a filtering process, with those who used their permits to only become traders likely to exit the market and those with operations in order having nothing to worry about, Vallejo Galvan said.

"It has both pros and cons," he said.

Pemex has lost almost 50% of Mexico's diesel market and 30% of Mexico's gasoline market since 2016, when imports were liberalized, data from the state company shows. In March, Pemex imported 74,630 b/d of diesel, while private companies imported 71,070 b/d, data from the energy Secretariat shows.