Mon, Jan 02, 2017 - Page 14 News List

Mexico fuel price hikes mar season

DEREGULATION:The government introduced reforms to the energy sector, which has been state owned since 1938, to allow private investment to target a market monopoly


The price deregulation this year — part of a broader energy reform passed two years ago under Mexican President Enrique Pena Nieto allowing some private investment and ending more than seven decades of state monopoly over the sector — establishes 90 different tariff zones where prices will be allowed to fluctuate.

Officials say it is time for Mexicans to pay market prices for gasoline and longtime subsidies are not sustainable especially with the peso’s dramatic fall against the US dollar. Earlier this year, the first gas stations run by companies other than Pemex began operating as part of the reform, on the theory that injecting competition will level the field for consumers. However, they are still far outnumbered by Pemex stations.

In a second phase, other companies will be also allowed to import and distribute gasoline instead of Pemex handling the entire supply chain.

Pricing will no longer be a government decision but rather “a result of what happens in the market,” Mexican Secretary of the Treasury Jose Antonio Meade told Radio Formula on Thursday last week.

However, many Mexicans are skeptical that a dose of capitalism is a good thing for the energy sector, which was nationalized in 1938 and has long been considered part of the national patrimony. Opposition politicians on the left have lent support to calls for protests against the deregulation.

Pinon said as long as the country suffers from its logistical limitations, Mexicans will be paying “an internal overpricing” at the pumps.

“I don’t see a near-term solution,” he said.

He added that Pemex badly needs restructuring, and Grunstein said the company is weighed down by a powerful and corrupt union that obstructs attempts at reform.

“Anyone saying gas is going to rise because of competition is crazy,” Grunstein said. “It will go up because of the lack of competition and lousy management.”

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