After a gun battle between petroleum thieves and Mexican troops left 11 combatants dead, including at least four soldiers, near the city of Puebla early this month, would-be foreign participants in the country’s newly-opened energy market are having second thoughts, Bloomberg reports.
Mexico President Enrique Peña Nieto, nearing the end of his six-year term, has met resistance to reforms meant to attract more foreign capital into the country’s long-protected energy sector. Among other measures, this year has seen the opening of the first gas station not belonging to the state-owned Petróleos Mexicanos (Pemex) chain or its licensees, as well as the first permits for private companies to import gasoline into the country to relieve a shortfall in refinery capacity.
But the violence southeast of Mexico City—on top of riots earlier in the year when the removal of subsidies sent retail gasoline prices up by as much as 20%, in a much reviled price shock known as the gasolinazo—may have spooked some of the very investors the liberalizing moves were meant to attract.
Private importers ship their product into Mexico on the state company’s pipelines, and the violence occurred as soldiers tried to intervene in reports of a theft from a Pemex line. “Some 600 soldiers were involved in the initial operation, with another 400 backed by helicopters and truck-mounted weapons joining them,” Reuters reports.
The scale of the military assault may reflect the stakes for a national government that doesn’t want to see foreign investment deterred, and also relies heavily on revenue derived from Pemex profits. Last year, oil thieves cost Pemex an estimated 581.2 million gallons of fuel, up 24% from 2015. “Disabling [illegal] fuel pipeline taps [has] cost Pemex around US$220 million in the past six years, an amount that has risen more than tenfold over the period,” Bloomberg notes, citing Pemex data reported in Mexico’s Milenio newspaper.
“Fuel theft is a significant concern for many companies going into Mexico, and we don’t know that the government is doing anything to alleviate that risk,” said Rajan Vig, whose Houston company wants to import fuel into Mexico. “We need the government to be on our side.”
“It’s part of a worrisome trend that investors will take a look at and price into the offers they make and the amount of investment they decide to put into Mexico,” added energy consultant John Padilla.