COFECE Suggests Caps on PEMEX Jet Fuel to Promote Competition

The Federal Commission of Economic Competition (COFECE) reports that state-owned oil company PEMEX holds a dominant position in the jet fuel market, despite a constitutional reform crafted in 2013 that aimed to ensure fair competition.

In June 2013, the Ministry of Economy along with OECD signed an agreement to help strengthen competition in Mexico. As a result, COFECE was created to act as a watchdog. The commission has reported several entry barriers for potential competitors in the jet fuel market, including restrictions on access to infrastructure, regulatory hurdles and PEMEX’s dominant position in the market.

"Most of the [fuel storage] capacity in the country is contracted with PEMEX... with no maximum limits to its reserve capacity, which limits the entry of competitors," reads a COFECE statement.

To promote fair competition, COFECE suggests for the Energy Regulatory Commission (CRE) to establish a rule that would cap PEMEX's share of the market for the storage of jet fuel. Moreover, regulatory changes should be made to improve access to infrastructure. According to COFECE, PEMEX holds a significant share of fuel storage capacity in the country and if the recommendations are implemented, they would be “reflected in better prices for the final consumer."

Jet fuel is a major expense for commercial airlines and any reduction in the price of jet fuel could reduce their operating costs, which could ultimately benefit consumers in the form of lower ticket prices or other cost savings. The jet fuel market is a key component of Mexico’s aviation industry, which is one of the largest and fastest-growing in Latin America. 

Besides the limitation to the entry of competitors, the industry also deals with a complex primary commercialization market, as the prior import permit regime limits the entry and permanence of economic agents. There are also problems with the external storage market, as the lack of access to the external storage infrastructure for jet fuel inhibits the ability of current and potential participants to compete. Finally, the internal storage and dispatch market also poses some problems, as some concession titles for the operation and administration of airports contain exclusivity clauses in favor of Airports and Auxiliary Services (ASA), which indirectly limit competition to new entrants in the supply.