The administration of President Andres Manuel Lopez Obrador has restricted competitors of Pemex not only by blocking fuel importing companies but also by preventing more retail permits, sources said. After two months of not issuing fuel retail permits, Mexico’s Energy Commission (CRE) on Friday granted only one permit, to a retail station located in Michoacan. Since the beginning of the Lopez Obrador government, CRE has significantly decreased the issuance of new retail permits to follow the president’s objective to restore Pemex’s dominance in the market, said Santiago Arroyo, a legal expert based in Queretaro, Mexico.
The regulator has increased the requirements to obtain or renew retail permits in the time since the Hydrocarbon Reform pushed by Lopez Obrador’s party has been suspended in District Courts, Arroyo said. He added that the lack of new permits has also created a black market where permits are being sold at higher costs. Fuel companies have been struggling with the lack of permits since 2019. The suspension of administrative activities from the regulator due to the Covid-19 pandemic and CRE’s capacities due to staffing reductions further deteriorated the situation, he added.
The energy regulator has given about 80 retail permits so far this year, according to CRE session documents. In 2020, the regulator approved only 183 retail permits, 230 fewer than in 2019, according to CRE annual reports. CRE has also significantly decreased the number of sessions it held to approve new permits. In 2020, the body regulator reported 23 sessions, only two more than in 2019. There are currently around 450 permits waiting to be approved by the regulator, said Marcial Diaz, director of Mexico City-based legal firm Lexoil. He added that the regulator usually issued around 300 new permits per year before the new measures by the Lopez Obrador administration to limit private participation. Currently, there are companies with finished stations waiting for the CRE permit, Diaz said, adding that the Covid-19 pandemic worsened the problem since some of CRE’s administrative activities were suspended in March 2020.
The government is seeking to force a Pemex consolidation in the retail market by not giving out new retail permits or only granting them to companies using Pemex flag, causing private stations to return to the state-owned company, Arroyo added. From a legal standpoint, CRE commissioners could be committing abuse of authority by not granting new permits.
“Eventually, any company may file injunction against a CRE commissioner for the stoppage of new permits,” Arroyo said. It is likely that this situation may continue until mid-2022, when there is more certainty about the presidential candidates that may replace the Lopez Obrador administration, Arroyo added. Private companies’ new investments may wait until a new government can change the current regulations, he said, adding that there are 1,500 companies with retail stations under construction. The 2013 energy reform allowed different private fuel companies to open new brands of retail stations in Mexico, taking market share from Pemex. As of June 30, a total of 7,136 gas stations operated under the Pemex flag, a decrease of 10.3% compared with the same period of 2020, according to Pemex’s latest financial results.