OREANDA-NEWS. January 27, 2017. Mexico may consider lowering a fuel tax to offset any excessive rise in prices when the government updates its pricing formula in February, according to the government finance secretary.

"We need to make assessments … in December we were contemplating the possibility to allocate cash surplus to moderate the IEPS" fuel tax, finance secretary Jose Antonio Meade Kuribrena said today. "We will have to see going forward how things evolve, we have had stability with the oil price this year, but the exchange rate still has a great volatility."

The comment comes as a falling peso threatens to drive up retail gasoline prices that are scheduled to be updated by the government on 4 February and 11 February as part of a gradual opening up of Mexican energy markets. It also coincides with escalating political tensions between the US and Mexico, as US President Donald Trump announced plans to expand a wall along the border with Mexico and to force that country to pay for it.

Meade guaranteed that in the event of a fuel price increase on 4 February, it would not be as significant as the two-digit spike observed in January. That's when a temporary pricing formula meant to better reflect logistical costs in different regions and international reference prices was applied. Prices went up 14.2-20.1pc, generating widespread protests and blockades of Pemex facilities that caused fuel shortages.

The finance secretary was speaking on local radio hours before Mexican president Enrique Pena Nieto cancelled his 31 January meeting with Trump in Washington.

Mexico is in the midst of implementing a large energy reform that ends state-run Pemex's monopoly, opening the downstream sector to competition and liberalizing prices. Fuel retailers have been able to rebrand their Pemex franchises since January 2016. Since April 2016 suppliers other than Pemex have been able to import fuel, but permit holders say the special tax on production and service (IEPS) is too high, preventing them from launching imports and effectively retaining Pemex's import monopoly on motor fuels. Mexico is a new importer of gasoline.

The last step of the process is price liberalization, which will occur gradually throughout the year, beginning with the northern states of Baja California and Sonora on 30 March.