LPG prices have been capped for the first time since 2016 as the president pushes through reforms
The Mexican government has permitted energy regulator CRE to start capping retail LPG prices for a six-month period despite not receiving the required authorisation from competition watchdog Cofece to do so.
The government on 28 July cleared the way for the CRE to regulate LPG prices, on the basis that unfair market conditions had created an emergency that threatens national security. Current law dictates that Cofece must declare anti-competitive conditions in the domestic market before the state is allowed to intervene. The watchdog has called the government's move illegal and has challenged President Andres Manuel Lopez Obrador's apparent bias towards state-owned energy firms.
The CRE moved quickly to publish an LPG price methodology in the country's official gazette on 29 July, based on an average sale price, logistics cost, profit margin and K-factor. The regulator on 31 July set its first price caps for retailers at an average of 12.21 pesos/litre ($2.31/USG) or Ps22.61/kg ($1.14/kg), which was 9.6pc lower than an average of retailers' prices reported to the CRE of Ps13.52/l on 30 June. Retailers had until 1 August to comply — the firms say they will contest the restrictions. The CRE will publish weekly maximum LPG prices for 145 regions — the same grouping used before LPG price caps were lifted in 2017.
Price limits should only be set in markets without competitive conditions, and the caps could have the opposite effect of the government's intent, such as LPG shortages, Cofece says. Mexico's energy ministry Sener is probing monopolistic practices, according to the watchdog, but the government has not listened to Cofece's recommendations, including easing limits on how and where LPG is sold.
Sener has argued a Cofece ruling would take too long for an issue requiring immediate attention. The ministry claims regional LPG retailers are involved in unfair practices and even illegal activities, and says a protective framework is needed to address a social and national security threat.
Market distortion
Mexico's independent competition think-tank IMCO has criticised the CRE for failing to follow the proper procedures, saying such regulatory changes need to be sent to the regulatory improvement agency Conamer for public consultation. The methodology will also create market distortions that deepen pricing problems and harm consumers, IMCO says. It has called on the government to do the opposite of what it proposes, to raise competition and lower LPG cylinder prices.
The move to cap LPG prices comes as the president pushes ahead with plans to establish a state-owned LPG retailer that would sell at "fair prices", as well as a raft of other rule changes aimed at supporting state-owned Pemex's interests in the transport fuel and LPG markets. Lopez Obrador's measures that favour state-owned energy companies have led to legislators in southern US states calling on President Joe Biden to act, saying the measures unfairly disadvantage US firms.
