A Mexican government decision to eliminate a tariff on naturalgas imports July 1 was heralded as good news for U.S. pipelines andMexican consumers. Currently 4%, the tariff on U.S. gas imports,was to be eliminated in 2003 following annual reductions of 1%. Thetariff went into effect at 10% with the signing of the NorthAmerican Free Trade Agreement (NAFTA). The tariff’s elimination isintended to boost gas availability to Mexico’s northern region asthe country turns more and more to gas-fired power generation.

KN Energy was one of many U.S. companies that lobbied long andhard for the tariff’s elimination. “I think it’s a welcome step inthe right direction for the free movement of energy across theborders, and it’s going to be advantageous to Mexican customers andU.S. energy providers. And it’s certainly going to enhancecompetition along the U.S.-Mexico border,” said Bill Garner, KNEnergy International executive vice president.

KN right now is evaluating acceleration of a 105-mile pipelineproject targeting Monterrey, Mexico. “It’s going to accelerate theproject.” KN also has an LDC in Hermosillo. Industrial customersthere will benefit from the tariff’s elimination.

“It affords us additional market opportunities in the state ofChihuahua. We’re one of the major exporters of gas to Mexico nowthrough an interconnect in El Paso, TX, and this will open upadditional marketing opportunities, primarily industrialcustomers.”

Last June, the Interstate Natural Gas Association of America(INGAA) in the face of Mexican opposition abandoned efforts toeliminate the tariff. INGAA decided to temporarily shelve the issueafter natural gas was pulled from a list of agreed tariffreductions in May 1998 following a NAFTA ministerial meeting withCanada and Mexico. The action was taken when the United Statescould not agree to the terms under which Mexico said it wouldremove the gas tariff.

“We’ve been actively discussing this with Mexican and U.S.Department of Commerce representatives for years,” Garner said.

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