There is no competition in the sale of LP gas in 97% of the country: Cofece

The Federal Economic Competition Commission (Cofece) determined that there are no effective competition conditions in 97% of the country, that is, in 213 of the 220 geographic markets defined for the distribution of liquefied petroleum gas (LP) to end users through distribution plants and tank trucks after that distributors increased their profits 145% from the opening of the market in 2016 to April of this year, a period in which the spot price of this fuel in the US market Mont Belvieu it increased only 15 percent.

In Mexico, gas LP It is the main fuel used by families and businesses to cook, heat water, and provide heating in homes. This fuel is purchased from delivery vehicles in portable containers (cylinders) or by means of loads made by tank trucks in the facilities that consumers have in their homes (known as stationary tanks).

Through a statement, the investigating authority of the regulator in economic competition He explained that preliminarily this declaration is relevant because energy markets, such as that of LP gas, have a cross-cutting effect on the economy, which implies that when their prices rise, the costs of producing other goods, for example, some foods, increase. it has a direct impact on the purchasing power of families, especially those with lower incomes. “In particular, in the period between December 2016 and April 2021, distributors increased on average 145% their average gross profit margin nationwide,” revealed the Cofece.

The gas then went from a final price of 14.50 pesos per kilogram to the 20 pesos at which it closed at the national average set by the distributors before the intervention of the current administration to set maximum prices, with which it increased by more than 45% , while the spot price of the US Mont Belvieu market, according to the United States Energy Information Administration went from 0.659 to 0.750 dollars per gallon, which implies an increase of less than 15% in the molecule that is part of the formula, which implies that the rest of the increase in the consumer price in Mexico was a margin that the distributors reinvested and they won in their operation.

Among the elements identified that inhibit competition stand out, according to the Cofece: a high concentration in multiple regional markets and the existence of barriers for potential competitors to enter these markets due to high investment costs, such as those related to the establishment and commissioning of a distribution plant, the acquisition of a vehicle fleet and portable cylinders, a long-term return (between 3 and 10 years), as well as high sunk costs.

In addition, it encountered regulatory barriers, since it must comply with a high number of standards and legal requirements, for which it has to interact with at least five authorities, both local and federal -among them, the Energy regulatory commission (CRE), la Security, Energy and Environment Agency (ASEA), la Secretary of Energy and the Secretary of Finance and Public Credit–, ​​which take time to obtain.

He also stated that there are commission agents and clandestine groups and pseudo-unions whose conduct constitutes a barrier to entry, since they inhibit or hinder the concurrence of distributors to certain geographical areas, especially in the Metropolitan Area of ​​the Valley of Mexico.

Therefore, the investigating authority published this Wednesday the extract of the Preliminary Opinion of this investigation (DC-001-2021) and from this moment, the economic agents interested in this procedure will be able to present the statements and allegations that they consider pertinent in order that the Plenary of the Commission issues the final resolution of this case.

In accordance with the current regulatory framework, if the meaning of this Opinion is confirmed regarding the lack of effective competition conditions in the distribution of gas LP to end users through distribution plants and tank trucks in the 213 regional markets, it will be up to the CRE to establish the regulation of consideration, prices or rates. For this, it requires a prior declaration of the absence of competition conditions by the Cofece.

[email protected]

Leave a Comment