The first media controversy from the energy regulation deals with the liberalization of the gasoline market. On June 10th, the discussion process began; several commissions will be in charge of drafting the secondary legislation that the Constitutional Reform will implement and which contemplates an initiative known as the Hydrocarbons Law, one of the most complex and most awaited bills. The project sent by President Peña to Congress stated that permits will be granted to gas stations from 2017 and, on 2019, the exclusivity that PEMEX holds on the supply of fuel will come to an end. In addition, the draft project that the commissions will vote in the Senate contemplates several changes such as providing powers for the Federal Commission of Economic Competition (CFCE) in order to anticipate the opening up, for 2019 and 2020, the liberalization of controlled gasoline prices to the general public. Likewise, it also grants the aforementioned institution with the power to be able to propose the Energy Secretariat with sanctions to public companies (CFE or PEMEX) that may hinder competition.
Leaving the political drama of those decisions aside and regardless whether the new powers of the anti-monopoly body manage to watch the fairness of the process and punish those who commit illegal actions, the liberalization of the gasoline market will set major dilemmas that should be reviewed in order to build an efficient process for the opening. Currently, the Regulatory Law of the 27th Constitutional article (art. 14 Bis) forces to have franchise contracts with those who intend to distribute gasoline and liquid fuels, thus, limiting the retail market exclusively for Mexicans. In the face of a potential entry of new stakeholders in the market, the potential involvement of foreign investments as well as the and the dissociation of PEMEX’s supply will have short and medium term implications that will directly affect the interests of several Mexican politicians that have taken advantage of private business without any completion; that is to say, gas station granted as political payments, and that have been part of a local or regional monopoly for decades. This is only one example of the sort of opposition this reform will face. It should not be taken lightly.
One of the effects of the PEMEX monopoly, which has been fostered for more than 70 years, was the fact that the supply of gasoline served as a way to pay political favors rather than be part of an efficient distribution plan throughout the country. Anybody who has driven in Mexican highways knows that is a common occurrence to travel for miles without finding a single gas station. This is why, given the amount of paperwork and networking needed to establish one of these stations and also because it involves authorities from three government levels (for instance, for land or construction permits), it wouldn’t be a surprise to learn about cases in which particular Mayors or local politicians impose creative obstacles in order to prevent any competition or, in the worst case scenario, may engage in corruption acts such as accepting bribes in order to maintain the status quo.
According to politicians, the gasoline prices will end up decreasing in favor of consumers. On that matter, it is essential to understand that the reductions of the gasoline subsidy have been gradual and the government cannot promise that prices will drop. On the contrary, it is important to warn that if liberalized prices respond to movements of supply and demand before new investors enter into the market and begin their operation, the lack of the end product is a feasible phenomenon that could generate a dramatic rise of prices, thus creating chaos and uncertainty in the liberalizing process. It is a complex dilemma. A right answer would probably need of a precise assessment of the date and time of liberalization in order to guarantee a reasonable supply that will enable balanced market prices. Are authorities aware of this? When taking a look into the official rhetoric, it seems they are not.
Gasoline is only a microcosm of the challenges that the energy reform will face. There are similar dilemmas in every aspect that concern the oil monopoly, which is understandable given the complexity of the reform itself as well as the huge diversity in all the opposition forces it faces. A considerable part of this opposition offers simple explanations but others propose quite complicated answers. In that sense, the optimistic statements made about timing and results are not always justified or reasonable.
CIDAC
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