From Monopoly to Free Market



As Mexico continues its phased deregulation of the country’s retail fuels market, Pemex finds itself in an unfamiliar position: Forced to compete. Indeed, it’s a busy time for the Mexican oil giant—and changes are coming from the top down. In this issue of Market Update, we’ll get to know Pemex’s incoming CEO, explore the national oil company’s refreshed franchise model, and look at a little problem we like to call tax evasion.


And the award for new CEO goes to …

Following the appointment of CEO Jose Antonio Anaya to national Finance Minster, Pemex announced that Carlos Alberto Trevino Medina would step in to lead the state-owned oil company. Outgoing CEO Anaya will fill the void left behind by Jose Antonio Meade, now a 2018 pre-candidate for president from the Partido Revolucionario Institucional (PRI).

Appointed by President Pena Nieto, incoming Pemex CEO Trevino Medina has two Masters degrees from ITESM in Monterrey and comes from a strong background in the public sector. Prior to joining Pemex, Señor Trevino Medina served as chief clerk of the ministries of economy and energy, undersecretary of expenditure for the Ministry of Finance and Public Credit, CEO of Financiera Rural, and CFO of the Mexican Institute of Social Security. Medina also has executive experience in the private sector, and we expect that he will follow Anaya in promoting President Pena Nieto’s program.


Fresh franchise model for Pemex

As a state-mandated monopoly, Pemex historically served a captive audience. Today, however, the national oil company faces a flood of foreign competitors, and non-Pemex fuel stations are opening every day. In an effort to adapt to its changing market, the Mexican oil giant recently announced an overhaul of its retail store model. Among the changes proposed, Pemex announced plans to better serve customers, strengthen the value of the brand to license holders, and offer competitive prices. Lofty goals, to be sure.

So how does the company plan on implementing these sweeping changes? On the licensing side, Pemex will shorten the franchise process from 1 year to 1 month, offer a loyalty program, and provide marketing and training support. Additionally, the firm will offer better fuel with high-end additives.

Three variations of franchise will be offered including Pemex franchise, sublicensing of branded products and unbranded products. Additionally a new image station will be rolled out with the major markets of Mexico City, Guadalajara and Monterrey beginning in December, followed by other major urban areas as early as next year with rurally-located stations starting late in 2018.

Pemex’s recent announcement made no mention of a budget or capital cost for the new program, but with BP, Shell, Chevron, Total, Andeavor, and a host of other big boys bringing a modern, U.S.-styled retail experience, this step marks the beginning of a much-needed strategic shift by Pemex to protect its endangered market share.


Pedal down, finish line in sight

The CRE has confirmed that price caps in the final zone (comprised of Campeche, Quintana Roo, and Yucatan) will jump forward 30 days, and that fuel price restrictions we be lifted as of the end of November. With this final step, Mexico is now functioning with no technical price limitations. The government can still manipulate the IEPS tax deduction to help reduce the volatility of pricing, but today we are one step closer to a true market-driven system, and that is a good thing for everyone.


Tax Cheats

From day one of the energy reform, Mexico has faced a challenge in collecting taxes on delivered goods. Because of the complex layers of taxation across the refined products sector, some importers have attempted to circumvent taxes in order to generate better economics, thereby growing their distribution footprint and market share.

Some of the methods of avoiding taxation employed might be considered “standard practice,” i.e. corrupt agents and bribes. However, other, more technical practices, are also starting to crop up in this evolving space. Some importers are blending down diesel, others are improperly classifying gasoline and diesel as other products, while still others are flat out misrepresenting volumes. And the tidal wave of volumes crossing the border by vessel, rail car and truck creates a tremendous amount of stress of verifying products and volumes for taxation.

The SAT, Mexico’s taxing authority, recognizes the problem and is attempting to implement better mechanisms to monitor incoming products and assess proper taxes. As the reform gains stability and progresses, I have no doubt that the collection, management and use of this data will become more standardized and less corruptible.

Despite the current challenges, our outlook on Mexico is as positive as it’s ever been. We believe that time will sort our many of the present concerns and that Mexico is well on its way to becoming an efficient working market. Interested in getting in on the ground floor? Contact our international markets team today!



Chad Smith
Senior Vice President of Terminal Operations