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Mexico's New Fuel Nationalization Law Hits Another Wall

A Mexican court has issued an injunction against new legislation that sought to change the rules of competition on the country's fuel market, The Associated Press reports.

The legislation, which was passed by the lower chamber of the Mexican parliament last month, involves changes to an energy law that gives the government power to restrict private oil companies' activity in oil and fuel imports.

The changes, therefore, would give the government the power to revoke private companies' permits to import and market oil and fuels if, for example, they are deemed to threaten the Mexican economy and national security.

They would also grant the government to right to seize fuel stations owned by private companies and fuel terminals, according to the AP report.

The changes would affect both local and foreign companies active in the Mexican fuel market. Interestingly enough, the proposal does not list the circumstances under which import and sale permits could be revoked, only saying that such a move would be considered "when an imminent danger is foreseen for national security, energy security or for the national economy."

Private fuel marketers were only allowed to operate in Mexico starting in 2016. These fuel marketers quickly undermined Pemex's market share, the AP report notes, recalling that the state-owned major did not have a particularly good reputation as fuel retailer.

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According to President Andres Manuel Lopez Obrador, the purpose of the legislative changes is to counter contraband gasoline imports. He noted that private importers of gasoline often don't pay taxes.

The government can appeal the court's decision, but it has become the latest blow against the president's efforts to solidify government control over the energy sector, from fuels to electricity generation.

Earlier this year, the Supreme Court struck down changes proposed in a draft policy that would see the state-owned power utility, CFE, get preferential treatment by the national grid operator over private electricity producers. The court called the proposal unconstitutional.

By Irina Slav for Oilprice.com

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