Mexican President Submits Bill to Boost State’s Role in Fuels Market

Mexican President Submits Bill to Boost State’s Role in Fuels Market

Potential takeover of operations run by private businesses is latest effort to curtail opening of energy industry to foreign investors

Mexican President Andrés Manuel López Obrador sent to Congress a bill that aims to boost the state’s role in the fuels market, including the possibility of taking over operations run by private businesses, the latest effort to curtail the opening of Mexico’s energy industry to foreign investors.

Mr. López Obrador has clashed with the judiciary and the private sector as he intensified actions to alter the ambitious overhaul carried out under his predecessor. He has said such a change was aimed at destroying emblematic state-owned firms such as the electric utility CFE and the oil company Petróleos Mexicanos.

The bill, submitted late Friday to the lower house, seeks changes in the hydrocarbons law that would allow authorities to suspend private permits and intervene temporarily in the event of an “imminent threat to national security, energy security, or the national economy.”

The proposal makes clear that Mr. López Obrador, who equates state control of energy with national sovereignty, wants to boost the position of the state companies.

Mexico in 2016 opened fuel imports, storage and distribution to private investors, lifted foreign ownership restrictions for service stations and allowed the sale of gasoline brands other than Pemex for the first time in almost eight decades.

As a result, foreign major oil companies entered the 800,000-barrel-a-day retail gasoline market, including Exxon Mobil Corp. , BP PLC, Chevron Corp. and Royal Dutch Shell PLC. Those firms and Mexican newcomers have taken sizable market share from the former state monopoly.

“What they don’t want is competition, because they want to keep the fuels and the power markets” in government hands, said José Antonio Prado, an independent energy consultant in Mexico City.

Foreign companies have also arrived in Mexico to develop storage and transportation infrastructure for gasoline and diesel, much of which is imported.

Mr. López Obrador’s initiative follows the passage earlier this month of changes in the country’s electricity law that give the state-run CFE priority over private power generators and call for the revocation of certain private generation permits.

Mexican courts have suspended application of the electricity law while it is being challenged by affected companies, actions that infuriated Mr. López Obrador. Previous efforts to restrict the scope of private power generation have been blocked by courts, including the Supreme Court, which this year ruled that a policy limiting private access to the national electricity grid was unconstitutional.

The proposal to curtail the overhaul of the fuels market doesn’t specify what could be considered a national security threat leading to intervention.

“This is an imminent risk, which removes legal certainty in the sector,” said Rodolfo Rueda, a partner at the Thompson & Knight law firm. “The bill proposes the temporary intervention in private facilities that could end up in Pemex’s hands.”

Mr. López Obrador’s criticisms of private companies and the judiciary have intensified ahead of midterm elections in June. His Morena party would need to increase its congressional majority to reverse the constitutional changes that opened the energy sector.

“It’s necessary that the state companies play a more active role in the processing and refining of oil, processing of natural gas, export and import of hydrocarbons and fuels, as well as transport, storage, marketing and sale to the public of hydrocarbons, fuels or petrochemicals,” the current proposal says.

While proposed changes in the rules on fuel storage requirements, and stricter measures against fuel theft and contraband are positive, that is more than outweighed by the threat of private assets being taken over for such “ambiguous and uncertain” causes as energy security and economic emergency, said independent energy analyst Gonzalo Monroy.

“The heart of the matter is that this would be the equivalent of a direct expropriation,” he said.

Messrs. Monroy and Rueda said the bill wouldn’t likely affect existing service stations, although it could put their expansion plans in jeopardy.

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