Mexico’s President Andrés Manuel López Obrador (“AMLO”) has unveiled plans to set up a state-owned company responsible for the distribution of Liquified Petroleum Gas (“LPG”), the most common domestic fuel in Mexico.
With the creation of this new company, which will be named Gas Bienestar and will be part of PEMEX, AMLO expects to sell LPG at lower prices than private companies. LNG prices have risen by 30% in recent months, having a significant impact on the country’s poorest households.
A senior LPG energy consultant was not convinced the initiative would work, “It is unsustainable. Firstly, investment is required for the installation of points of sale, the establishment of distribution routes and the personnel. In addition, it ignores the fact that the price escalation has more to do with international prices and some bureaucratic obstacles in the SAT -tax administration service. So, the only way to offer lower prices will be through subsidies and the budget margin for this is very narrow.”
“The only way to offer lower prices will be through subsidies and the budget margin for this is very narrow.”
Senior LPG energy consultant, Mexico
Regardless, AMLO announced that Gas Bienestar is expected to start operating in Mexico City in October 2021. The company will have the capacity to supply 50% of Mexican households and will operate through its own specialised fleet of vehicles using PEMEX facilities.
A former PEMEX executive thought the suggested timescales looked ambitious, “The government has an idea but I do not believe that they have a detailed plan, yet. They are running against the clock because if they want to be operational in October they will have to bypass all existing regulations.”
“The government has an idea but I do not believe that they have a detailed plan, yet.”
Former executive, PEMEX, Mexico
A senior specialist in PEMEX’s Industrial Transformation unit explained what progress had been made, “We have implemented a series of approaches with authorities and citizens of rural areas in the states of the Yucatan Peninsula to launch welfare gas stations, we are reviewing land and possible locations. The project is coupled with the routes of the Mayan and Interoceanic Train and the intention is that the local communities will be able to operate the stations themselves. The National Guard will protect the routes and facilities.”
The decision to set up Gas Bienestar was met with mixed responses. While some distributors accused the government of anti-competitive practices, others, like the president of Blue Propane, a Sonora-based company, have welcomed the decision. A spokesperson for Blue Propane said that in northern regions like Baja California, the industry’s main players have entered into collusion agreements which restricts the entry of additional competitors in the sector.
The energy consultant felt sympathy for the private sector, “Anti-competitive? Of course it is, that’s what the government wants. They want to take control and give PEMEX a profitable business. In addition to disrupting the market, they are continuing to try and disarm the energy reform through secondary regulation and hinder the operation of private companies. The private companies will complain and then the government will retaliate with some surprise tax or criminal investigations targeting them.”
International investors and executives are already worried about investing in Mexico’s energy sector, we can’t imagine such an attack on a private market will do much to calm their fears.