Pemex 'Indirect Expropriation' Bill Clears Hurdle

Pemex 'Indirect Expropriation' Bill Clears Hurdle
Pemex's share of the gasoline and diesel market has fallen by double-digits with the arrival of competition.

(Bloomberg) -- Mexican President Andres Manuel Lopez Obrador’s controversial proposal to tighten control over the country’s fuel market has cleared the lower house of congress, another step in his long-sought goal of resuming the state’s energy monopoly.

With 292 lawmakers in favor, 153 opposed, and 11 abstaining, the chamber approved in general terms the president’s proposal to give national oil company Petroleos Mexicanos greater control over the recently liberalized fuel market that lured investments from Royal Dutch Shell Plc, BP Plc, Chevron Corp. and Exxon Mobil Corp. After debate on certain articles, the bill will be taken up by the senate, where the ruling Morena party and its allies have a majority.

If approved as expected, the initiative would reform the country’s hydrocarbon law and expand government control over fuel distribution, imports and marketing. It would allow for the suspension of permits based on national or energy security, and also let Pemex take control of facilities whose permits have been suspended.

It’s the latest bid by the president, commonly known as AMLO, to try to restore oil producer Pemex and power utility Comision Federal de Electricidad to their former glory as their aging infrastructure makes them less competitive. Since rising to power in 2018, Lopez Obrador has fought against landmark energy reforms that opened the energy industry to investment from the private sector.

The new law is akin to “indirect expropriation” of fuel retailers’ assets, said Oscar Lopez Velarde, a law professor at Universidad Iberoamericana who specializes in energy issues. It allows the state “to take control of the administration and operations of the permit holder indefinitely for reasons that are highly subjective, and without there actually being a breach of its obligations,” he said on Wednesday.

The president is using the bill to stoke nationalist voter sentiment ahead of the main electoral test of his presidency: keeping control of congress in midterm elections this year.

Even if the legislation is held up in courts -- like a similar bill to prioritize CFE in the power market -- the effort gives Lopez Obrador another shot to deliver on his election campaign promise to strengthen Pemex, one of the nation’s largest employers and a symbol of national pride.

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. International trading houses including Glencore Plc and Trafigura Group also built fuel storage 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 competitors 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.

© 2021 Bloomberg L.P.



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