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Feature: Pemex regaining sales to gasoline stations on government moves to stifle competition

Highlights

Fuel stations slowly migrating back to Pemex as their supplier

Glencore terminal in port of Dos Bocas suspended, hurting supply

Retail fuel station owners in Mexico who over the past few years opted for alternative suppliers to Pemex are slowly going back to the state company, as government permitting and compliance measures have begun to hurt their ability to compete, according to market participants and observers.

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The government has increased inspections of import facilities as it continues President Andrés Manuel López Obrador questto reduce competition to Pemex and has so far suspended import permits held by Trafigura and Windstar. The inspections are being conducted by the Energy Regulatory Commission, or CRE, together with law enforcement and the tax authority SAT. Recently, the government suspended activities of the reception terminal operated by Glencore in the port of Dos Bocas, Tabasco state, according to a person close to the situation.

"Glencore has continued to supply the market with imports from another terminal in the neighbor state of Veracruz and purchases from Pemex," the source said.

A Glencore spokesperson Nov. 17 declined comment, while CRE and Pemex spokespersons did not respond to requests for comment.

Since a 2013 liberalization by former President Enrique Pena Nieto, private companies increased their share of the import market, and currently account for roughly 50% of all imported diesel and 35% of gasoline, according to Energy Secretariat data.

However, market participants say there have been some shortages in recent weeks at G500, the Mexican group of independent service stations Glencore supplies. Some, particularly in the Dos Bocas region, are considering going back to Pemex after experiencing shortages from G500.

"There has been short supply for the last two weeks, but the provider is not giving us any information," said a station owner who added he was ready to end his contract with G500 and go back to Pemex.

The Dos Bocas region is one of the areas in the country with the highest number of service stations that have decided to leave Pemex, according to data from PetroIntelligence a provider of local retail prices and intelligence.

"The high level of migration is partly explained by the presence of Glencore's terminal. Before, Pemex was the only supplier," Montufar Helu, PetroIntelligence CEO told Platts.

The strategy from the government, which officially is aimed at reducing fuel contraband and tax evasion, does not include only supervising large import terminals. Increased inspections have occurred in transloading facilities along Mexico's railway system and at the border with the United States.

The increased government intervention in recent months has resulted in a 50% reduction in the total amount of delivery terminals for fuels, Kansas City Southern, the largest cross-border railroad operator said in October during its Q3 call with analysts.

Most recently, the government has begun limiting the distribution of fuels through trucks, requiring terminals to only service distributors who show transportation permits for individual tank trucks, which most of the distributors do not have, said one importer.

Terminal operators are complying to avoid closure, the importer said. Many distributors have started the paperwork to obtain their permit, which might take months. Others have simply turned back to Pemex and asked them to take them back, he said.

The increased government intervention and regulation comes at a time when Pemex is offering distributors discounts for switching back to it, he said.