Pemex counters fuel competition with discounts

Pemex's recent discount increases for its largest wholesale diesel customers are a sign the state-owned company sees competition heating up in Mexico's formerly monopolized fuel market.

The company's latest monthly update of its discount plan — which by law must be made public because of its still-dominant position — regrouped discount tiers by terminal activity level instead of geography, increasing many discounts.

The largest possible discount is for diesel fuel in the last of four new groups, which includes terminals with the highest sales. Buyers who commit to three-year contracts — which market players say is a longer term than usual — and buy at least 15.084mn l/month (3.984mn USG/month) can shave Ps0.81/l (16¢/USG) off of Pemex's daily posted prices. That is up from Ps0.47/l in the top tier of the discounts that were valid 16 August-17 September.

"Almost Ps0.40 more of a discount for every liter is a lot. It is simply too much," said Cesar Cadena, president of Mexican diesel importer Grupo Energeticos, which is both a competitor with Pemex and a customer.

Cadena said that discount level would make it harder for his company to compete, particularly since it would apply to some of his biggest buyers.

The handful of terminals in the second and third groups appear to be singled out because they have easier access to the US fuel market.

Pemex is facing the greatest level of competition for diesel. In July private companies brought 32pc of diesel imports into Mexico — up from 16pc in July 2018. For gasoline, private companies brought in 13pc of all imports — up from 3.5pc in July 2018.

Cadena said he considers Pemex's ability to give discounts detrimental to the country's goal of building more competition, although Pemex does have more limits than most companies. It must make its discounts public, for example, while other companies do not.

The 72pc increase in Pemex's top diesel discount underscores the new government's aim to maintain Pemex's position as a strong player in the market, said Rosanety Barrios, former director at Mexico's energy regulatory commission (CRE). But that could be self-defeating for its long-term goals.

"The government in the end does want competition and investment from private firms," Barrios said. "They want more companies to invest in Mexico, especially in energy infrastructure, but if Pemex is so hard to compete with, the incentives to build storage and transport facilities will not be there."

Victor Arellano, compliance and regulatory director for Mexico's largest fuel retailer association (Onexpo), said the group expects Pemex to keep adapting its discount program as the market evolves. It already eliminated discounts for four-year contracts, as those are rarely used, and could look at updating the discounts more frequently than once per month.