Mexico: PEMEX hampers competition between gas stations: COFECE

State owned Mexican oil company Pemex represents an obstacle to competition, since it prevents lowering fuel prices, slows the growth in service stations, and even generates risk of shortage, stated the Federal Commission of Economic Competition (COFECE).

The COFECE, in a document entitled “Transition towards competitive energy markets: gasoline and diesel,” stated that the large discounts that Pemex offers to some corporate customers imply losses, so that competition is reduced at the expense of unaccounted losses, because the total value of the contracts and discounts granted is unknown.

The agency also criticized the state of transport and storage infrastructure in ports, dominated by Pemex (which owns 89% of the storage infrastructure) and causing low levels of effective inventory for the country. Mexico has three days of reserve inventory in gasoline and diesel, which contrasts with countries such as the US (27 days) and France (22). Pemex also owns 100% of the pipelines in the country, which account for 76% of the fuel transported.

Regarding service station franchises, COFECE mentioned the lack of investment in the sector, as well as Pemex’s dominant position in the sector, since it holds 76% of gas stations. Another 24% of the franchises operate under a different brand, but still buy their supplies from Pemex, while only 6.2% of franchises import gasoline from other suppliers.

Thus, the agency recommended encouraging more private participation, modifying the regulations that hinder the local establishment of new service stations, forcing Pemex to make transparent the procedures for a franchisee to conclude the franchise and supply contract, among others.