December 21, 2016 / 9:52 PM / in 2 years

UPDATE 1-Mexico fuel prices to begin liberalization at end March

(Adds quote, details on liberalization schedule, current prices and background)

By David Alire Garcia

MEXICO CITY, Dec 21 (Reuters) - A staggered fuel price liberalization in Mexico will begin at the end of March and extend through the remainder of 2017, the head of the country’s energy regulatory commission (CRE) said on Wednesday.

The move will phase out government-set gasoline prices, a practice which has prevailed in Mexico for decades, and replace them with market prices.

Guillermo Garcia, president of the commission, told a news conference that market prices for gasoline and diesel would be rolled out gradually by regions, beginning with the northwestern states of Baja California and Sonora on March 30.

The change is one of the most tangible parts of a landmark energy reform in Mexico, which in 2013 ended the 75-year monopoly of state oil company Pemex over nearly all facets of the sector, from crude production to retail fuel sales.

Current, government-set gasoline prices in Mexico are about 10 percent higher than in the United States, where market prices prevail.

Under the new scheme, liberalized fuel prices would spread to other northern states by June 15, where infrastructure already exists to import fuels, and then to high-consuming central and southern states by late November.

The roll out of market fuel prices would conclude in late December with the three eastern states in the Yucatan Peninsula.

“The prices to the public will be free and flexible,” said Garcia, adding that Pemex would benefit by being able to recuperate its true logistical costs of importing fuels.

The plan is “good for the fiscal accounts” of the government, said Nomura analyst Benito Berber in a research note on Wednesday, noting that Pemex’s losses due to importing gasoline total nearly $3 billion annually.

In April, Mexico allowed private companies to import fuels for the first time, nine months ahead of what the energy reform originally stipulated.

The reform also paved the way for private companies to establish their own non-Pemex branded gas stations for the first time since the 1930s, which began earlier this year.

Conventional gasoline prices in the United States currently average about $2.32 per gallon, according to data from the U.S. Energy Information Administration. The equivalent gasoline price in Mexico is about $2.57 per gallon.

Taxes constitute nearly half of the retail fuel price in Mexico. ($1 = 20.4850 Mexican pesos) (Reporting by David Alire Garcia; Editing by Andrew Hay)

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