Barriers Limit Competitiveness of Mexico's Jet Fuel Market
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Barriers Limit Competitiveness of Mexico's Jet Fuel Market

Photo by:   Precious Madubuike, Unsplash
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Sofía Hanna By Sofía Hanna | Journalist and Industry Analyst - Tue, 03/21/2023 - 15:41

The Federal Economic Competition Commission (COFECE) found several barriers to competition in the jet fuel value chain that could indirectly impact consumers by increasing the cost of air transportation services. With this in mind, COFECE issued a series of recommendations to the Energy Regulatory Commission (CRE) and the Ministries of Economy, Energy, Infrastructure, Communications and Transportation, Finance and Public Credit and Public Function. COFECE also asked Airports Auxiliary Services (ASA) to restore adequate competition conditions in these markets. 

Jet fuel or turbosine is the primary input for air transportation and represents between 25% and 30% of airlines’ operating expenses, according to COFECE. Considering that air transportation services contributed 3.08% of Mexico’s transportation GDP in 2021, barriers to price competition impact airlines. They could also indirectly impact consumers, according to figures from the National Institute of Statistics and Geography (INEGI). As previously mentioned by MBN, the cost of turbosine, the most commonly used fuel in aviation, grew faster in Latin America than in other regions. 

To address these barriers to competition, COFECE studied the sector and found five barriers to competition that restrict the efficient operation of the primary and secondary commercialization of jet fuel and its storage. These barriers are: 

  • Barrier B-1: Import permit provisions limit the entry and permanence of economic agents. Given this barrier, COFECE urged the Ministries of Economy and Energy to modify several agreements that restrict the import of jet fuel.

  • Barrier B-2: There is a shortage and lack of access to external storage infrastructure for jet fuel, which inhibits the ability of current and potential participants to compete in its commercialization. In this case, COFECE asked the Energy Regulatory Commission to increase access to external storage infrastructure for potential sellers.

  • Barrier B-3: Most storage facilities have contracts with PEMEX, which has no maximum limits for its storage capacity, limiting the entry of competitors. COFECE asked the Energy Regulatory Commission to establish regulation that determines the full participation of PEMEX  in the external storage facilities at a regional level.

  • Barrier B-4: Airports and Auxiliary Services (ASA) is vertically integrated with several segments of these relevant markets and has not completed a functional, operational and accounting separation, which restricts competition in secondary marketing and supply. COFECE urges the Ministry of Infrastructure, Communications and Transportation, the Ministry of Finance and Public Credit and the Ministry of Public Function to evaluate and, if necessary, modify the current Organic Statute of ASA. The Board of Directors of ASA was also ordered to make a clear separation of the functions, procedures and personnel of the administrative units responsible for the commercialization and storage activities.

  • Barrier B-5: Some concession titles for the operation and administration of airports contain exclusivity clauses in favor of ASA. Although these provisions ceased to be enforced with the Hydrocarbons Law, they could indirectly limit competition to new entrants. It was recommended to the Ministry of Infrastructure, Communications and Transportation to issue a general notice in the Official Gazette of the Federation stating that such exclusive contracts are no longer applicable.

These recommendations are expected to promote “a greater entry of competitors in the markets that make up the value chain of jet fuel, which will be reflected in better prices for the final consumer” says COFECE.

Photo by:   Precious Madubuike, Unsplash

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