MEXICO CITY — The coronavirus disease 2019 (COVID-19) has brought a stop to the development of new fuel storage terminals as Mexico’s energy regulatory system suspended the process of new permits until the end of April due to the pandemic. Mexico’s Energy Secretariat (SENER), Energy Regulatory Commission (CRE), and Environmental and Industrial Safety Agency for the Energy Sector (ASEA) published the suspensions last week in the Government Official Gazette (DOF). According to CRE records, there are over 20 storage projects under evaluation by the regulatory body, including projects near to completion such as the Terminal de Rio Bravo in Matamoros, Tamaulipas, and Itzoil’s NUUP in Guadalajara, Jalisco.
This suspension is set to end on April 17. However, it will likely be extended as Mexico enacted a sanitary emergency on Monday as COVID-19 cases in the country exceeded 1,000. The Mexican government expanded on Monday its suspension of all non-essential government and private activities until April 30, 10 days more than initially set. Lawyers told OPIS that the suspension is going to hurt further an already battered Mexican energy sector that has faced a regulatory bottleneck since President Andres Manuel Lopez Obrador took power in December 2018.
“This is a hit to the sector considering there were already many delays in the approval of permits and verifications. … This is going to paralyze the sector even further,” Marcial Diaz, directing partner of Mexico City-based consulting firm Lexoil, told OPIS. The most likely outcome is that the suspension of approval terms will extend until the COVID-19 situation is controlled, something that could take many weeks or even months, Diaz said. May will be a key month to track for Diaz as energy regulators might restart activities at different times, pending how the COVID-19 pandemic is controlled across the country.
“Suspending the terms to approve new permits isn’t the only challenge but also the personnel shortage and the limited know-how of the regulators,” he added. Santiago Arroyo, CEO of URSUS Energy Consulting, a Queretaro-based consultancy, told OPIS it could take three months before regulators begin operating normally if the suspension is lifted in April. “In the industry, we are considering people at CRE, and other regulatory bodies are going away on vacation,” Arroyo said.
With this, the suspension on new regulatory permits means it is unlikely new storage permits will receive the greenlight by Lopez Obrador’s administration until the end of the year or even the first half of 2021, Diaz said. A growing concern is a freeze on the regulatory approval for a change in ownership of retail stations, an area Arroyo expects to be severely impacted by the suspension in regulatory activities. At the time, CRE is evaluating over 450 ownership transfer requests. Arroyo is more optimistic that the government will prioritize the approval of new storage permits.
“The ideology has played in our side on this one as the government knows that having greater storage capacity goes in line with their energy sovereignty goals,” he added. The suspension of activities could also put at risk the market oversight, Arroyo said. “We could see some players abusing the market by importing products illegally without paying taxes or selling products with an overprice.” According to an OPIS assessment, taxes charged on fuel imports are over twice the cost of the fuel itself. Another area of concern for the industry is going to be the approval of new import permits by SENER, in which the number of approvals was cut significantly last year as the government introduced stricter requirements. “It is okay as an authority to increase the requirements. However, the number of permits approved has been limited due to the excessive red tape,” Diaz said.
The government should be more flexible — especially with companies already operating in the market — in its prerequisites for import permits as it requires the volume in supply and end-sale contracts to match, he said. “This is something unreasonable considering the nature of the fuel marketing sector where players invest expecting to grow their supply portfolio,” he added.