- 30 Dec deadline for public comment on controversial draft
- Implementation might be as early as Jan ‘21
- Base oil importers would be subject to stricter import terms
- Draft says government could cancel permits early
HOUSTON (ICIS)--Dozens of Mexico-focused fuels and petrochemical market stakeholders have commented on a controversial draft regulation from Mexico's economic ministry and energy ministry (SENER) that could give the government much greater discretion in granting import and export permits requested in 2021.
For the import permits, the products covered include olefins, aromatics, crude oil and refined products such as gasoline and base oils.
For the export permits, the products include oil, refined products and natural gas.
If adopted, the changes would give the Mexican government more discretion to cancel the permits.
Article 57 of the draft, for example, would allow SENER to cancel an import or export permit that has not been used in 30 calendar days. This could be highly problematic for seasonal markets.
Article 47 would allow SENER to withhold permits if it determines in its energy-balance analysis that granting the permit would affect energy security or a product's supply level in Mexico.
Energy attorneys said that “energy security” is a legally undetermined term, which would give SENER a broad margin of discretion evaluating applications.
Mexico's current federal administration has been consistent in promoting a nationalistic energy agenda that puts state-run energy producer Pemex and the state utility (CFE) at the centre of the country's economic development.
A former SENER official who reviewed the draft said the proposal duplicates requirements already requested by other ministries involved in vetting companies involved in Mexican import and export processes. The former official also said it is generally broad enough in many parts to leave it open to interpretation, including the definition of “energy balance”.
"The [draft] regulation is so bad, it is left to be interpreted by government officials and the evidence an applicant can present," the former official said.
Market sources said two changes that stood out to them from the draft were the exclusion of a previously available 20-year permit for certain products and a requirement that applicants for a five-year permit provide detailed customer information.
Among the products affected by the proposal are base oils. Currently, they do not currently require a permit to import.
Within the regulation framework, base-oil importers would need to show intended use of the material, including logistics and storage plans, customer contracts and volumes.
Lubricant blenders are working to gather documentation, but the timeline is tight.
Base-oil market players remain uncertain on what to expect, but many importers in Mexico could face permit obstacles if the regulation is passed as is.
Most of the light-viscosity base oils imported into Mexico are used as a diesel extender rather than to produce finished lubricants, which could prevent securing a permit.
For US base-oils suppliers, this would cut off a relief valve for surplus inventories.
The draft regulation was posted on 1 December and current rules require it remain posted for comment for 20 business days or until 30 December. This means it could mostly be made official upon publication in Mexico's federal official gazette (DOF) as early as the first full week of January.
The draft says it would not affect existing permits, though the potential new regulation would apply to new permit requests.
The current federal administration has previously pushed its draft regulations for early DOF publication. This has proven helpful for market participants involved in subsequent lawsuits challenging the regulations, where some favourable rulings have been based on such grounds.
It is currently unclear whether this draft regulation would violate the US-Mexico-Canada Agreement (USMCA) or World Trade Organization (WTO) trade rules.
The list below shows some of the products that would be affected by the proposed changes to Mexico's import permits. It is subject to change.
|Mixed xylenes (MX)|
|Mixtures of butane and propane|
|Liquefied Petroleum Gas (LPG)|
|FUEL AND REFINED PRODUCTS|
|Ammonia in aqueous solution|
The list below shows some of the products that could be affected by the proposed changes to the export permits.
|Liquefied natural gas (LNG)|
|Mixtures of butane and propane|
Insight by Claudia Espinosa
Additional reporting by Amanda Hay and Al Greenwood