Rail company CPKC holds back fuel shipments to Mexico after new regulation

MEXICO CITY/HOUSTON (Reuters) - Rail company Canadian Pacific Kansas City (CPKC) has temporarily held back rail cars containing fuel and petrochemicals bound from Texas to Mexico following Mexico's restrictions for oil imports in a move to fight smuggling, according to a note sent to clients and seen by Reuters.

Mexico this week imposed fresh restrictions on imports of dozens of refined petroleum and petrochemical products to curb fuel theft and adulteration, according to a decree published in Official Gazette, including certain types of gasoline and diesel, jet fuel and additives for gasoline that were widely used in Mexico, such as MTBE (methyl tert-butyl ether).

Rail cars with shipments of products listed by Mexico's government were removed preventively this week from CPKC's rail lines from Brownsville and Laredo, Texas, due to the new regulation, the company told clients in the note.

The retention is temporary until companies show the corresponding import permits, according to the note, which was sent on Thursday.

CPKC confirmed the content of the note to Reuters. Mexico's National Customs Agency did not respond to a request for comment.

A separate rail company, Union Pacific Corp told Reuters it was "aware" of the new Mexican regulation, and was working with its customers on the matter. The company added that some of them were "applying for the necessary permits."

The restrictions, which were enforced hours after being published, aim to stop the adulteration and trade of fuels that might pose a risk to human health, the environment and vehicles, according to the decree.

Mexico has struggled for decades to curb fuel theft, even after strong measures imposed by President Andres Manuel Lopez Obrador in recent years including a focus on moving more product by road and reducing volumes domestically transported via pipelines. Thieves often "milk" fuel pipelines owned and operated by state oil company Pemex to extract gasoline, causing spills and fires.

Mexico's government also has investigated importers for inflated fuel bills and accused foreign traders of transporting smuggled fuel.

The new measures were initially well received by analysts as a long-awaited response from the government to address the problem, but they said proper implementation of the provisions will remain a challenge.

"If you talk to certain importers ... they actually believe that it is important to have support from the Mexican government to avoid fuel smuggling," said Alejandra León, associate director of S&P Global Commodity Insights.

"No one wants to have unfair markets, but what they fear is the issue of implementation; that instead of becoming a regulation to prevent smuggling, it becomes another burden for the people who do import legally," she added.