A Mexican fuel distributor has raised concerns that importers are disguising railed shipments of US diesel as other refined products to avoid paying Mexican excise taxes.
Mexican distributor Energex said it is seeing "large volumes" of diesel imported through a rail terminal operated by Mexican company Titsa in Garcia, Nuevo Leon, sold at Ps3-5/l (57¢-95¢/USG) below market value, it told the Mexican arm of US shipper Kansas City Southern (KCSM) in a letter dated 19 January.
The distributor alleged that this could only be possible through evasion of taxes "using machinery and rail lines concessioned to Kansas City Southern of Mexico," Energex said in the letter seen by Argus. "For that situation to be possible, there must be either voluntary or involuntary complacence on the part of KCSM."
But KCSM said it was unaware of any such smuggling through its rail lines and terminals, although it "understands the seriousness of the situation that you describe," the company said in a response seen by Argus. "We will undoubtedly cooperate with the corresponding authorities if an investigation is conducted."
Energex has notified authorities including the energy ministry (Sener), the energy regulatory commission (CRE), state-owned Pemex and tax and customs authorities in the US and Mexico, it said in the letter.
Kansas City Southern did not immediately respond to an Argus request for comment.
Distributors such as Energex, who use mostly tank trucks, compete with other modes such as rail to move fuel imports from the US into Mexico. Competition may increase as Mexico has recently changed its fuel import permit process in a way that could favor larger companies, which are more able to use rail and waterborne vessels instead of trucks.
KCS's fourth quarter refined products shipments to Mexico grew by 87pc from a year earlier, a rare bright spot for its petroleum-related sectors.
But improper declaration of imports would not only cut into government tax collections, but also into rail company revenue as tariffs differ by product. It could also leave rail companies unprepared in the event of a spill or emergency, as they would believe they were dealing with a product with a different chemical composition.
Energex estimates 120mn l/month (25,200 b/d) of gasoline and diesel could be entering Mexico reported as some other form of chemical product through all modes of transport.
Outright fuel theft has long been an issue in Mexico, and tax authorities have also said that smuggling occurs across both borders — both in the form of clandestine crossings and importers declaring diesel or gasoline as products such as base oil, lubricants or additives that pay no fuel excise taxes (IEPS).
Federal excise taxes represent 26pc-28pc of the national average wholesale regular gasoline and diesel prices posted today by state-owned Pemex. The base federal IEPS rate for 2021 is Ps5.1148/l (97¢/USG) for regular gasoline, Ps4.3192/l for premium and Ps5.6212 for diesel.
The Mexican government began an anti-fuel theft campaign in late 2018, but mainly focused on tank trucks and vessels. Efforts have included turning over control of ports to the navy, and reducing fuel taxes in northern and southern border cities to provide fewer incentives for smuggling.
