AMLO Doubles Down on Shielding Pemex from Competition

AMLO Doubles Down on Shielding Pemex from Competition
The Mexican president on Friday sent a bill to congress to give Pemex greater control over the domestic fuel market.

(Bloomberg) -- Andres Manuel Lopez Obrador is doubling down on a promise that helped launch him to Mexico’s highest office in a landslide victory.

The Mexican president is trying to scrap a policy that opened the nation’s energy sector, and he’s made it the center of his strategy to keep control of congress in midterm elections just two months away.

Late Friday, Lopez Obrador sent a bill to congress that would reform the country’s hydrocarbon law and give state oil company Petroleos Mexicanos greater control over the domestic fuel market. The legislation is the latest bid by the president to protect Mexico’s aging state companies, which he pledged during his campaign to restore to their former glory.

Even if the legislation is held up in courts -- like a similar bill to prioritize state utility CFE -- the effort gives Lopez Obrador another shot to deliver on his campaign promise to protect Pemex, one of the nation’s largest employers and a symbol of national pride. While the new bill may further harm Mexico’s business climate, Lopez Obrador is using it to stoke nationalist voter sentiment ahead of the main electoral test of his presidency.

“Lopez Obrador has been very skilled in keeping alive the flame of indignation,” said Carlos Bravo Regidor, a political analyst and professor at CIDE in Mexico City. “With the tsunami of injunctions this will generate, it will appear that the energy industry won’t let the president implement his policy, it won’t let him govern. And that is something that electorally serves Lopez Obrador.”

The leftist president personally remains highly popular, yet his government gets lower marks in handling the economy and the pandemic. Lopez Obrador presided over the worst economic contraction in nearly a century with little fiscal support for the population, and resisted restrictive lockdown measures even as more than 200,000 Mexicans died. Government figures now put that toll even higher.

As the June 6 electoral test approaches, the Mexican leader known as AMLO has been increasing the anti-business rhetoric and threatened to embark on a constitutional reform of the sector after the vote. Last week he challenged executives for companies including electric utility Iberdrola SA and beverage company Fomento Economico Mexicano S.A.B. to come on stage at his daily press briefing to debate with authorities the merits of the current framework.

“Let’s debate, because it’s a topic of public interest,” the president said. “We won’t move because we would be complicit with corruption, we would cover it up and we took office to end corruption.”

Protecting Pemex

The bill aims to boost government control over fuel distribution, imports and marketing, and would allow for the suspension of private companies’ permits “when an imminent risk to national security, energy security or the national economy is anticipated,” according to a draft seen by Bloomberg News. It would also let Pemex take control of facilities whose permits had been suspended.

The proposal will be discussed in the lower house of congress next week, said Jesus Ramirez, the presidential spokesperson.

If it passes, the measure would be the biggest reversal yet to hydrocarbon reforms that ended the state’s oil monopoly in 2013 and 2014. Since taking office in 2018, the president has been seeking to dial back on the opening of Mexico’s energy industry to private-sector investments.

The message to foreign and private companies is that “the Mexican government doesn’t want you here,” said Alejandro Schtulmann, president of Empra, a risk consulting firm in Mexico City. “If they made investments they are going to try to operate, but it will all come down to a legal battle. There could be strong retaliation from the U.S. government toward this, and also from private parties.”

Pemex losing market share to private companies in the fuel sector “is the main motivation” for the bill, Schtulmann said.

In 2016, Mexico allowed companies other than Pemex to import, distribute and sell fuels for the first time since the industry was nationalized in 1938. Since then, the world’s top energy companies have invested aggressively in Mexico, with oil majors such as Royal Dutch Shell Plc, BP Plc, Chevron Corp. and Exxon Mobil Corp. opening thousands of gasoline stations, and international trading houses including Koch Industries Inc., Glencore Plc and Trafigura Beheer BV building fuel storage, transport and logistics infrastructure to bring more barrels into the country.

The arrival of competition has seen Pemex’s share of the gasoline and diesel market fall by double digits, with private companies importing more diesel than the state giant for the first time in June of last year. Pemex has also struggled under its debt burden and long-term production declines.

The courts have thwarted Lopez Obrador’s previous attempts to reimpose the state’s dominance in the energy market. Earlier this month a judge suspended indefinitely a law that would give state companies priority over private firms in the electricity market. The president said he would seek to push through a constitutional reform if his efforts were blocked.

Keeping Control

The president’s Morena party is trying to retain the control of congress it currently holds in collaboration with smaller parties. While Morena is far ahead in the polls for the June 6 vote, it may well fail to reach the two-thirds super majority needed to change the constitution by itself.

Spokespeople for the Energy Ministry and Pemex didn’t respond to requests for comment. Senate leader Ricardo Monreal’s office said they had not seen the bill.

--With assistance from Michael O'Boyle and Cyntia Barrera Diaz.

© 2021 Bloomberg L.P.



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