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Mexico set to pass bill likely to increase Pemex's refined products market share

Highlights

Bill waiting for president's signature

Mexican refined products imports climb

Opposition to challenge in Supreme Court

Mexico City — Mexico's federal government is expected to soon pass a controversial bill that will likely increase the dominance of state oil company Pemex in the refined markets market.

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The Mexican Senate on April 22 approved a bill presented by President Andres Manuel Lopez Obrador that toughens the rules for private companies to request and keep permits to import, export, transport and distribute liquid fuels in the country. The bill, approved by 65 votes to 47, had already been passed by the lower house and is expected to be signed into law by Lopez Obrador in the coming days.

The government claims that the bill targets fuel theft and contraband, which are problems that need an immediate response. However, observers have highlighted the bill is aimed at reducing competition.

Mexico is dependent on refined products imports as Pemex's refineries are operating well below capacity. Imports have climbed in recent months, with Kpler vessel tracking software showing 19.59 million barrels of refined products arriving so far in April, up from 15.56 million barrels in March and 12 million barrels in February.

According to data from Mexico's anti-trust agency (Cofece), Pemex has lost roughly 50% of the retail diesel market and 30% of the retail gasoline market to the competition.

The bill also opens the possibility of a company losing its permit if its operations are deemed an "imminent threat" to national security or energy security, concepts which some market watchers say can be ambiguous in their interpretation. Observers have also warned the law could allow Pemex to take control of the assets of those companies that lose their permits.

Senators from opposition parties who voted against the bill said on April 22 that they would challenge the law at the Supreme Court, as they claim it goes against Mexico's constitution.

The bill is the latest in a series of legal moves carried out by the government to undo a 2013 reform that opened up the energy sector to private participation. The administration of Lopez Obrador has accused former lawmakers of receiving bribes to approve the reform and has made attempts to fight it, all of which have so far been halted in courts.

Lopez Obrador has said that if his efforts are halted because they go against the constitution, he will change the constitution to strengthen Pemex and the state utility CFE. Under current conditions, his Morena party lacks the political muscle to change the constitution.

But the administration has focused on increasing its national representation in the upcoming elections. On June 6, Mexico will hold elections for the lower House of Congress and almost 50% of the country's governors in the largest election process in the recent history.