Mexlub: Rumors of Demise Unfounded

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Life isnt easy for Mexicos biggest lubricants company, not even with a cushy if contested deal giving it exclusive access to the shelves of the nations gasoline stations.

Mexicana de Lubricantes had it tough enough operating with enormous debt in an increasingly competitive market. Now the Guadalajara-based company says it is also battling misleading reports that it is drowning in its debt, that it may soon be sold and that it is losing its corner on gasoline stations.

Mexlubs managing director refuted all of those reports during a telephone interview with Lube Report Tuesday.

There are some people who are constantly using the press to spread misinformation about us, Octavio Sanchez Mejorada said. It does cause more difficulties for us but we are convinced that this company has a very attractive future.

Mexlub began operating in 1993 after an investment holding company, Impulsora Jalisciense, won the bidding to buy Pemexs lubricants operations. Impulsora paid $120 million, half of which it borrowed, for 51 percent of the business. Pemex retained the other 49 percent. To sweeten the sale, Pemex, which owns or franchises all of the nations gasoline stations, gave Mexlub exclusive rights to sell motor oils and other lubricants at those stations.

The exclusivity agreement later came under attack from competitors and the Federal Commission on Competition (CFC). In 1999, the commission ruled that the agreement violated regulations against anti-competitive practices and ordered Pemex to modify its contract with Mexlub. The commission upheld that decision through two appeals by Pemex and Impulsora but three different judges later ruled the commissions decision improper. The case is still being contested and an injunction has been placed against the order to modify the contract.

Mexlub believes the dispute will not be resolved for two or three years but recent newspaper reports have suggested that an end to the companys exclusive rights is imminent. On Dec. 6, for example, El Economista reported that Pemex was considering allowing its gas stations to sell other brands alongside Mexlub. Sanchez Mejorada discounted that notion, saying that Pemex recognizes its legal obligation to Mexlub.

Mexlub is Mexicos biggest lubricant company, with a 27 percent market share, one-third of which is through gasoline stations. But the big kid on the block complains that it has become a frequent target of bad and inaccurate publicity. Besides the gasoline station saga, different reports have described Impulsora, Pemex or both as likely to sell out. El Financiero said Dec. 6 that Pemex plans to sell its stake next month, and again, that Mexlub would consequently lose its corner on gasoline stations.

Sanchez Mejorada acknowledged that Mexlubs partners several months ago discussed the subject of ownership changes, including the possibility of bringing in additional investors. But he insisted that such discussions have ceased. A Pemex spokeswoman agreed that no such decision has been made, although she left open the possibility of future discussions.

Mexlub has also faced reports that it is sagging under its debt. A Nov. 26 article in the newspaper Reforma said the companys operating earnings for the past eight years have barely covered operating expenses and interest payments.

We do have a large debt, Sanchez Mejorada said. But these reports that we cannot make our payments are not true. We have never missed a payment and we are current with our debt. He added that Mexlub has to date paid $80 million on the initial loan and is in the process of refinancing.

Sanchez Mejorada speculated that the bad press has been generated by government officials, possibly members of the CFC, who are eager to see Mexlub lose its hold on gasoline stations. Such reports do affect the company, he said. For example, some franchise owners of Pemex stations believe they will soon be able to sell other brands.

Mexlub was pleased by the injunction against the CFCs order to modify its contract with Pemex and believes it will get further relief by refinancing its debt. Still, business is never easy in a market where growing competition drives down margins.

We believe we are in a good position for the future, Sanchez Mejorada said. We just have to stay focused.

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