Insights

End of PEMEX's Downstream Monopoly in Mexico

End of PEMEX's Downstream Monopoly in Mexico

The monopoly that Petróleos Mexicanos S.A. ("PEMEX") has long enjoyed over gasoline and diesel marketing and sales in Mexico has come to an early end, as Mexico has announced that it is opening the retail fuel market to private participation nine months earlier than originally planned.

Before the reforms to Mexico's oil and gas industry triggered by a constitutional amendment in 2013, state-run PEMEX was the only downstream player in the country. Service stations were operated by PEMEX franchisees, and the price of gasoline was both price-controlled and heavily subsidized by the Mexican government. To the chagrin of the Mexican public, however, fuel prices in Mexico were nonetheless significantly higher than comparable fuel prices in the U.S.

Similarly, before Mexico's energy reform, PEMEX was the only entity authorized to refine, import, and export crude oil and refined products. After years of underinvestment in the sector, there are now only six refineries operating in the whole of Mexico, which are simply not enough to meet the country's growing demand for gasoline, diesel, and petrochemicals. As a result, PEMEX currently imports more than 50 percent of the gasoline and diesel consumed in Mexico.

Mexico hopes this situation will change soon. Transitory Article 14, Section II of the Hydrocarbons Law (the "Law") enacted in 2014 provides that Mexico's Energy Regulatory Commission ("CRE") may issue permits for the marketing and sale of gasoline and diesel beginning on January 1, 2017. The Law also authorized Mexico's Ministry of Energy ("SENER") to issue permits for the import of gasoline and diesel beginning on January 1, 2017 (or earlier, if Mexico's antitrust authorities consider that the market conditions permit it).

On February 23, 2016, during remarks at the IHS CERAWeek conference in Houston, Texas, Mexican President Enrique Peña Nieto announced that imports of diesel and gasoline into Mexico will be permitted beginning on April 1, 2016, rather than at the beginning of 2017. From and after that date, the SENER may grant diesel and gasoline import permits to all applicants who meet legal requirements, effectively allowing independent service stations to freely import gasoline and diesel into Mexico. In the short time since Peña Nieto's announcement, the SENER has already received hundreds of requests for permits to build new independent service stations.

Mexico is also taking action regarding retail prices for diesel and gasoline. Transitory Article 14, Section I of the Law provides that the Mexican government will set the maximum retail price for diesel and gasoline between January 1, 2015 and December 31, 2017, taking into consideration transportation costs, regional differences, retail and distribution infrastructure, inflation, and international prices. After January 1, 2018, however, diesel and gasoline retail prices will be determined by the market.

Lawyer Contacts

For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com/contactus/.

Scott Schwind
Houston
+1.832.239.3710
sschwind@jonesday.com  

Alberto de la Parra
Mexico City
+52.55.3000.4087
adelaparra@jonesday.com  

José A. Estandía
Mexico City
+52.55.3000.4081
jestandia@jonesday.com  

Salvador Gallo, Francisco Pams, and Teresa Souza assisted in the preparation of this Alert.

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