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Mexico to liberalize fuel prices one month early

16 Nov 2017, 5.57 pm GMT

Mexico to liberalize fuel prices one month early

Mexico City, 16 November (Argus) — Mexico will liberalize fuel prices nation-wide on 30 November, moving ahead by 30 days plans to remove price caps in the Yucatan Peninsula at year's end, Mexico's largest fuel retailers association Onexpo said today.

By law, gasoline and diesel prices must be liberalized before January 2018. Fuel prices in central and southern Mexican states were set to become market-driven on 30 November, while Campeche, Quintana Roo, and Yucatan, in the Yucatan peninsula, were scheduled to be released on 30 December.

The proposal, initiated by the energy regulatory commission (CRE), has already been approved by Mexico's federal commission of regulatory improvement (Cofemer) and should be official some time this week, said Onexpo president Roberto Diaz de Leon Martinez.

"We're bringing the process forward to 30 November, with the idea that it will bring more competition," said CRE commissioner Guillermo Pineda Bernal. "Investment in fuel transport, storage, is what we were expecting from the energy reform."

Onexpo officials said they didn't expect fuel prices to fluctuate dramatically as a result, given that the government has pledged to continue with its policy of smoothing out fuel prices post-liberalization.

"We don't expect to see any big differences from what we have today … marginal price diminutions and increases that shouldn't impact the market," Diaz de Leon said.

After observing a fuel price hike of up to 20pc in January, Mexico's finance secretary introduced a mechanism to limit volatility. The mechanism took the shape of a discount to an existing fuel excise tax, also known as the IEPS, which the finance secretary adjusts every week.

The government has vowed to maintain this mechanism throughout 2018, even as fuel prices are liberalized. "It is very healthy that this scheme continues … it is an international practice that in many other countries has facilitated the execution of a market opening," said Diaz de Leon.

In recent months independent fuel importers have complained that the government's fiscal incentive was not sufficient to balance a difficult international environment. Importers have mentioned the impact of higher international fuel prices and volatility in the exchange rate, created by tense trade negotiations around Nafta, as concerns. US President Donald Trump's hostile declarations toward Mexico, as well as the 2018 presidential election in Mexico, are also weighing heavily on fuel markets, they said.

Onexpo acknowledged that the opening of Mexico's downstream sector and the construction of much-needed fuel transport infrastructure and the drawing in of significant independent fuel imports will take "a few years".

"Without [new] infrastructure, it will be very difficult to see private imports," said Diaz de Leon.

The construction of various private fuel storage terminals have begun in Mexico, but investment in costlier pipelines has been scarce so far.

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