Taxes thwart Mexican fuel market opening

OREANDA-NEWS. May 13, 2016. Mexico's fuel taxes are deterring private-sector companies from importing diesel and gasoline into the newly opened market despite a wave of authorizations.

As of 9 May, Mexico's energy secretary had awarded 52 permits to import diesel and 38 gasoline permits to a wide range of companies in the mining, transport and distribution sectors, among others. Altogether, the 90 one-year licenses would allow the importation of up to 29.5bn liters a year of diesel and 17.3bn l/yr of gasoline.

Singapore-based Puma Energy, in which Swiss trader Trafigura is the main shareholder, could become Mexico's top independent importer, after receiving permits to take up to 7.5bn l of diesel and 15bn l of gasoline in 2016-2017.

Trafigura on its own has secured separate permits for 4.6bn l/yr. Other big permit holders in terms of volume include We Gas Mexico and Houston-based Koch.

But several permit holders tell Argus that high taxes, including the special tax on production and services (IEPS) introduced at the end of last year to help offset revenue lost to the oil price drop, undermine the economics of imports, delaying the full implementation of the market's opening.

"Taxes are still a problem," said one executive, adding that all taxes account for about 40pc of the diesel price alone. "Adding logistics and other costs, there's no business to be made. We're waiting for a change so it becomes interesting."

Until last month, fuel imports had been the exclusive domain of state-run Pemex, but the oil company's industry monopoly was dismantled under a ground-breaking energy reform enacted in 2014.

Starting in January 2016, independent service providers were allowed to open their own retail stations, and on 1 April the government opened up imports, nine months ahead of schedule.

The move initially generated some industry skepticism, as infrastructure was deemed insufficient for both Pemex and new actors to use.

Although the pipeline network is still inadequate, trucks remain an available option, potential distributors and importers tell Argus.

Mexico's government currently has a ceiling on gasoline and diesel prices, based around 2015 values, until full liberalization takes effect on 1 January 2018 with the introduction of market-driven prices.

"Pemex has always had a hard time supplying the whole country," said another permit holder.

"Some companies are ready to pay a little more because Pemex is not supplying them with enough fuel, but the government is still setting prices," he said. If taxes remain this high, many companies could wait until next year, when prices become market-driven, to start importing gasoline and diesel, he added.

In May, 87-octane Magna gasoline is priced at 13.16 pesos per litre, 93-octane Premium gasoline at 13.95 pesos/l and diesel at 13.77 pesos/l.

Mexico is a net importer of gasoline. In the first three months of 2016, Pemex imported 411,500 b/d of gasoline and 133,600 b/d of diesel.

In the same period, it produced 393,300 b/d of gasoline and 261,700 of diesel.