Mexican President Andres Manuel Lopez Obrador sent a bill to congress Friday that seeks to give state oil company Petroleos Mexicanos greater control over the fuel market, dealing a blow to the country’s energy reforms.
It aims to boost government control over fuel distribution, imports and marketing, and would allow for the suspension of private companies’ permits “when an imminent risk to national security, energy security or the national economy is anticipated,” according to a draft seen by Bloomberg News. It would also let Pemex, as the state driller is known, take control of facilities whose permits had been suspended.
The proposal will be discussed in the lower house of congress next week, said Jesus Ramirez, the presidential spokesperson.
If it passes, the measure would be the biggest reversal yet to hydrocarbon reforms that ended the state’s oil monopoly in 2013 and 2014. Since taking office in 2018, the president has been seeking to dial back on the opening of Mexico’s energy industry to private-sector investments.
The message to foreign and private companies is that “the Mexican government doesn’t want you here,” said Alejandro Schtulmann, president of Empra, a risk consulting firm in Mexico City. “If they made investments they are going to try to operate, but it will all come down to a legal battle. There could be strong retaliation from the U.S. government toward this, and also from private parties.”
Pemex losing market share to private companies in the fuel sector “is the main motivation” for the bill, Schtulmann said.
In 2016, Mexico allowed companies other than Pemex to import, distribute and sell fuels for the first time since the industry was nationalized in 1938. Since then, the world’s top energy companies have invested aggressively in Mexico, with oil majors such as Royal Dutch Shell Plc, BP Plc, Chevron Corp. and Exxon Mobil Corp. opening thousands of gasoline stations, and international trading houses including Koch Industries Inc., Glencore Plc and Trafigura Beheer BV building fuel storage, transport and logistics infrastructure to bring more barrels into the country.
The arrival of competition has seen Pemex’s share of the gasoline and diesel market fall by double digits, with private companies importing more diesel than the state giant for the first time in June of last year. Pemex has also struggled under its debt burden and long-term production declines.
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The courts have thwarted Lopez Obrador’s previous attempts to reimpose the state’s dominance in the energy market. Earlier this month a judge suspended indefinitely a law that would give state companies priority over private firms in the electricity market.
The president said he would seek to push through a constitutional reform if his efforts were blocked. The attempt to modify the hydrocarbon law comes as AMLO, as the president is known, has increased his nationalist rhetoric and attacks against private companies, with a key midterm election approaching.
The president’s Morena party is trying to retain the control of congress it currently holds in collaboration with smaller parties. While Morena is far ahead in the polls ahead of the June 6 vote, it may well fail to reach the two-thirds super majority needed to change the constitution by itself.
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Spokespeople for the Energy Ministry and Pemex didn’t respond to requests for comment. Senate leader Ricardo Monreal’s office said they had not seen the bill.
— With assistance by Michael O'Boyle, and Cyntia Aurora Barrera Diaz
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