Mexico Accelerates Fuel Opening to Jump-Start Investment

(Bloomberg) -- Mexico is speeding up a countrywide liberalization of fuel prices by a month in a bid to kick-start lagging private investment.

Mexico’s energy regulatory commission, CRE, approved on Thursday bringing forward an end to government-set pump prices in the southeastern zone comprised of Campeche, Quintana Roo and the Yucatan, known as region five, to Nov. 30 from Dec. 30. Mexico will freely float prices by Nov. 30 in the rest of the country.

The move “sends a strong signal to the market” that Mexico welcomes new players in the sector formerly dominated by state-owned Petroleos Mexicanos, said Roberto Diaz de Leon, president of Onexpo, Mexico’s gasoline retailers association, speaking at an event in Mexico City.

Almost two years since Mexico approved legislation to allow private companies to import fuel, service station operators including Royal Dutch Shell Plc and BP Plc still receive their gasoline from Pemex. Mexico lacks the infrastructure to allow independent distributors and sellers to import fuel, said Diaz de Leon. Prices are still capped by the government in 65 percent of Mexico’s gas stations, accounting for almost three-quarters of national consumption, according to CRE data.

Mexico’s New Gasoline Retailers Still Turn to Pemex for Fuel

“It’s good news because it gives certainty that the calendar will be fulfilled before the end of the year as promised,” said Ixchel Castro, senior analyst at energy consultant Wood Mackenzie in Mexico City.

Rajan Vig, head of Mexico origination for BioUrja Trading LLC, a wholesale fuel distributor, said that the impact for investment may be subdued since Pemex controls access to the port in the zone and rail access is poor. “Not many people are lining up to deliver fuel into those areas,” he said from Houston.

Mexico Energy Minister Pedro Joaquin Coldwell said Tuesday that a special tax on importers and fuel sellers could help buffer price volatility. Mexico’s new fuel price policy was blamed for a 20 percent spike in some regions last January that was known as Mexico’s “gasolinazo” in Spanish, or fuel price slam.

“So far it doesn’t seem like the international prices of gasoline will increase in December and for the moment oil is going down,” said Castro. “There is always the geopolitical risk that can bring volatility to the market. And now region five would be exposed to these variations sooner than expected.”

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