Challenges In The Liberalization Of The Downstream Oil & Gas Industry In Mexico - Anti-trust/Competition Law - Mexico Law Articles in English - Mondaq Business Briefing - Books and Journals - VLEX 685905953

Challenges In The Liberalization Of The Downstream Oil & Gas Industry In Mexico

Author:Mr Enrique Gonzalez Calvillo, Jorge Cervantes, Cristina Massa and Diana Pineda
Profession:Gonzalez Calvillo, S.C.
 
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Background

The 2013 Constitutional Energy Reform was the cornerstone of a massive transformation to allow private (domestic and foreign) investment in all segments of the oil & gas industry, including gasoline and diesel, in Mexico, after eight decades of State monopoly held by Petróleos Mexicanos ("Pemex").

Pre-reform, Pemex produced or imported, transported, stored, marketed, distributed and delivered all fuels in Mexico. Pemex was also the sole supplier and franchisor of the more than 11,000 retail stations in the country, which were owned and operated mostly by individuals or very small enterprises, with few exceptions of larger groups of a few hundred stations. Pemex determined the size of the station, the distance among them (complying with local regulations where applicable), the quality of the products, the duration of the contract, provided a manual for the operation of the station, including ancillary products and services to be offered, and guaranteed a margin to retailers. Additionally, both the wholesale and consumer price was set by the Ministry of Finance (Secretaría de Hacienda y Crédito Público, or "SHCP") following budgetary and political criteria and at a national level. In sum, there were no market forces at play beind the retail sales of gasoline and diesel.

The energy reform: implications in downstream

Under the reform, Pemex' supply agreement is separated from the franchise agreement and are both susceptible of early termination. Imports of gasoline and diesel were liberalized and the Energy Regulatory Commission (Comisión Reguladora de Energía¸ or "CRE") began granting permits.

Pemex's first hand sales price (ventas de primera mano, or "VPM") was re-calculated under a new formula to better reflect costs, and discounts for volume are now a reality. A maximum national retail price within a band was set by SHCP as of 2016, also allowing for discounts to street prices, and a total liberalization of the price has been scheduled for January 1, 2018, at the latest.

Challenges ahead

This new scenario has resulted in exciting business opportunities for Mexican and foreign investors. However, many regulatory and practical challenges and questions remain for a smooth transition from a State monopoly in the supply of fuels and a highly diluted and relatively unsophisticated retail side, to an efficient market.

Examples of roadblocks to be removed include Pemex's control of virtually all of the existing -and clearly insufficient—transport...

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