MEPCO (Mecanismo de Estabilización de Precios de los Combustibles) is the system Chile uses to smooth increases and decreases in the price of gasoline, diesel and vehicle gas: when oil rises, the state collects less fuel excise tax, and when it falls, it collects more ([Ministry of Finance](https://www.hacienda.cl/areas-de-trabajo/politicas-macroeconomicas/mepco)). It was created by Law 20,765, published on July 9, 2014, and in 2026 it returned to the center of the debate: the government changed its parameters in March and fuel prices have risen five times in a row (see the latest fuel price increase).
MEPCO does not set the pump price: each distributor and station sets its own. What it does is move part of the tax so that the wholesale price changes gradually. Here is how it works and what it costs.
What MEPCO is and what it is for
| Item | Detail |
|---|---|
| Name | Fuel Price Stabilization Mechanism |
| Law that created it | Law 20,765, published on July 9, 2014 |
| Regulation | Supreme Decree 1,119 of 2014 |
| Fuels covered | Vehicle gasoline, diesel, liquefied petroleum gas (LPG) and compressed natural gas (CNG) |
| Who calculates it | Macroeconomic Coordination unit of the Ministry of Finance |
| How often prices change | Every three weeks, since Law 21,537 (January 2023) |
| Not covered | Kerosene, which uses a different fund, the FEPP |
Source: Ministry of Finance and ENAP's weekly report. Law 21,537 took effect on January 24, 2023, to avoid weekly fluctuations; before 2022 prices changed every week, according to Diario Financiero. The Oil Price Stabilization Fund (FEPP) applies to kerosene, which is why it moves at a different pace.
How MEPCO works, step by step
Fuels pay an excise tax, set by Law 18,502, which has two parts: a fixed base component and a variable component, which is the one MEPCO moves. The Ministry of Finance estimates and publishes that variable component every week (Ministry of Finance).
- The ministry calculates an import parity price: what it costs to bring fuel from a reference market (the U.S. Gulf Coast, according to ENAP), including freight and other costs.
- It compares it with a reference price band defined under the law and its regulation.
- If the international price rises above the band, the variable component turns negative: the state collects less tax and cushions the increase (in practice, a subsidy).
- If the price falls below the band, the variable component is positive: the state collects more tax and recovers part of what it spent.
- ENAP applies the result in its estimated price report every Wednesday, and the change takes effect on Thursday.
| Base excise tax (Law 18,502) | Per cubic meter | Per liter (October 2026 UTM) |
|---|---|---|
| Vehicle gasoline | 6 UTM | CLP 433 |
| Diesel | 1.5 UTM | CLP 108 |
Our calculation using the October 2026 UTM (Chile's monthly tax unit), CLP 72,151, according to the SII. This is the base component, before MEPCO's variable component is added or subtracted, and excluding VAT. Finance Ministry decrees set the final rate as the sum of the base and variable components.
What it costs the state
MEPCO is not free when oil rises: every peso not collected in tax is a fiscal cost. That is why the law has an "exit clause": if the difference between what would have been collected with the base component and what was actually collected exceeds the equivalent of US$ 1.5 billion, the variable component must converge to zero within up to twelve weeks (article 4 of Law 20,765, Ministry of Finance).
| Period or moment | Fiscal cost or result | Source |
|---|---|---|
| Cumulative to December 2025 | Net positive collection of US$ 613 million | Budget Office, via Ministry of Finance |
| To May 7, 2026, without MEPCO changes | About US$ 1.5 billion (estimate) | Ministry of Finance |
| To May 7, 2026, with the changes | About US$ 300 million | Ministry of Finance |
| Estimated savings as of May 28, 2026 | About US$ 1.59 billion | Ministry of Finance, via La Tercera |
| Alternative estimate at end of May | US$ 1.83 billion without changes and about US$ 240 million with them | OCEC-UDP |
| Containing the October 2026 increases | About US$ 300 million over three weeks | Minister Jorge Quiroz |
Sources: Ministry of Finance, La Tercera, Emol, OCEC-UDP and Diario Financiero. Cost figures depend on the methodology and the scenario they are compared with; that is why the ministry and UDP reach different numbers.
What changed in 2026
In March 2026, with oil soaring because of the war with Iran and spending estimated at up to US$ 200 million a week, the Ministry of Finance issued Decree 103, signed by Minister Jorge Quiroz, which extended from two to four weeks the price average used to calculate import parity (BioBioChile, Emol). The result was the price shock of March 26: 93-octane gasoline rose CLP 372.2 per liter, 97-octane CLP 391.5 and diesel CLP 580.3 in a single week (La Tercera).
| Date | Change |
|---|---|
| March 26, 2026 | Decree 103 takes effect, with the largest weekly increase on record |
| Following weeks | Cuts after a truce was announced: -CLP 195.3 for 93-octane and -CLP 272.9 for diesel |
| May 6, 2026 | New decree lowering the variable components |
| July 30 to October 22 | Five straight increases: +CLP 183.4 for gasoline and +CLP 401.4 for diesel |
Sources: La Tercera, Cooperativa and Emol. UDP economist Juan Ortiz argues that with these adjustments MEPCO went from being mainly a smoothing system to something closer to temporary price-setting (Emol). The ministry responds that the adjustments are not discretionary and reflect how the system operates. An analysis by Fast Check reviews the debate over the excise tax.
MEPCO: common questions about the fuel subsidy
Is it a subsidy? Only when the variable component is negative: the state forgoes part of the tax. When oil falls, the opposite happens and the treasury collects more. Can it be eliminated? It would require changing the law; the exit clause only takes the variable component to zero if the US$ 1.5 billion threshold is exceeded. Does it also subsidize diesel? Yes, and the government also keeps direct support of about CLP 200 per liter, according to Minister Quiroz (Diario Financiero). To see how fuel weighs on inflation, see what the CPI is, and to compare prices with other countries, the gasoline price ranking in Latin America.
Frequently asked questions
What is MEPCO?
Chile's Fuel Price Stabilization Mechanism, created by Law 20,765 of 2014. It adjusts the excise tax to smooth price swings for gasoline, diesel, LPG and vehicle CNG.
Who created MEPCO?
It was created by law in 2014, during Michelle Bachelet's second government, with Law 20,765 published on July 9 of that year.
How is MEPCO financed?
Through the excise tax itself: when oil rises, the state collects less; when it falls, it collects more.
How often does the gasoline price change?
Every three weeks since Law 21,537 of 2023. ENAP publishes its report on Wednesdays.
Does MEPCO set the pump price?
No. Each distributor and gas station sets its final price.
