OREANDA-NEWS. February 09, 2017. Mexico's government temporarily lowering a fuel tax is a step in the right direction, but it will not be enough to break state-owned Pemex's lock on the fuel import market, aspiring importers told Argus.

After sometimes violent protest over fuel prices early in 2017, the government said on 3 February it would freeze maximum gasoline and diesel prices at their current levels until 17 February. It scrapped plans to update prices on 4 February and 11 February after prices at the pump jumped by 14.1-20.2pc on 1 January as part of Mexico's fuel market liberalization.

The government said its decision to intervene and lower the special tax on production and service (IEPS) had prevented a rise in fuel prices of about 0.7 pesos/liter of gasoline.

Industry has criticized the tax for being too high and making it non-economical for permit holders from beginning fuel imports, which were liberated in April 2016, and leaving Pemex as the best option for supply.

Mexico's fuel imports via Pemex in 2016 reached 692,900 b/d of gasoline and diesel combined, up by 31.4pc compared with 2015.

According to the official IEPS decree, signed by President Enrique Pena Nieto on 3 February, the tax was reduced by 41.2pc for 87-octane gasoline, by 4.3pc for the 93-octane grade and by 33.9pc for diesel. Under the new decree, the fuel tax is now at 2.53/l of 87-octane gasoline, 3.48 pesos/l of 93-octane gasoline and 3.13 pesos/l of diesel.

In a little less than a year, the energy ministry awarded 445 fuel import licenses to more than 320 companies for up to 390bn l of gasoline and diesel, although they have seen little use.

Permit holders say the lack of certainty and visibility are still obstacles, as they fear that the government could raise the tax if market fuel prices go down. The 3 February tax decree expires on 11 February, when the government is expected to again update its pricing formula.

"When fuel prices fall in Texas, we hope they will not raise the IEPS here," the permit holder said. "But we do not know, we hope for an announcement on this later this month and then we can maybe start importing."

Another permit holder, on the US side of the border, agreed that the IEPS included in the decree made imports viable, but that the government should fix the IEPS for at least six months.

"To get interesting prices, you need to sign contracts for a year, with regular monthly volumes," he said.

Another holder noted that conditions for potential fuel importers are still not as favorable as in power and upstream, two sectors that already count with a number of foreign participants.

"The learning curve of this government in the fuel sector has been very slow," he said.

Other sources said imports might be economical only to certain regions, such as those close to the northern US border, where cross-border fuel pipelines are under construction. Other areas will first require more investment in infrastructure.

Fuel is still largely distributed via trucks in Mexico, which the governments says costs 14 times more than transporting fuel in pipelines. Starting this month, Pemex will gradually open access to its fuel storage and transport infrastructure via staggered open seasons throughout the country.

If potential importers are given certainty, however, there could be new players in Mexico's fuel import market.

One permit holder located near the US border said that his company is analyzing the decree, adding that if uncertainties are overcome, "it is very possible that importing [fuel] becomes viable."