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septiembre 15, 2019
English Especiales Fluvio Ruiz Oil & Gas

Gasoline, the impossible market?

By: Fluvio Ruíz Alarcón

Historically speaking, the attempt to create a fuel-free market has been quite difficult to implement in Mexico. The outstanding researcher of the College of Mexico, Isabelle Rousseau, states in her book «Tribulations of two state oil companies (comparative trajectories of Pemex and PDVSA)»; that, in its beginnings, 85% of Pemex’s income came from domestic sales; these sales fed a subsidized consumption. Thus, from 1939 to 1958, general inflation was 459%, while the rise of petroleum products was 185%. Moreover, on the last day of the mandate of Adolfo Ruíz Cortines, fuel prices escalated to remain «frozen» until 1973, when they were increased by the government of Luis Echeverría Álvarez.

In the current century, both Vicente Fox and Felipe Calderón intervened to regulate fuel prices. In fact, in the government of the latter, the largest amount of financial subsidies for the consumption of gasoline and diesel in the history of Mexico was granted. In 2012 alone, 348 billion pesos were allocated for this purpose. For its part, in August 2016, the government of Enrique Peña Nieto decreed a 10% reduction in the price of LP gas, whose distributors were obtaining extraordinary rents due to the oligopolistic structure of that sector. At the same time, he applied the formula of Ruiz Cortines: increased and froze prices of gasoline for the rest of the year.

However, in the Hydrocarbons Law, approved in 2014, it was proposed to liberalize the fuel market in 2018. Also, it was established for Pemex to reflect its logistics costs in the prices from January 1, 2015, which did not happen, so Pemex continued absorbing those costs two more years. In 2016, the law was amended so that liberalization would begin in 2017. The citizen response to the increase in the price of gasoline forced the government of Peña Nieto, in February of that year, to implement a regulatory mechanism based on declaring weekly subsidies to the Special Tax on Production and Services.

The current government has taken up a similar mechanism to prevent the price of gasoline from rising in real terms. Likewise, it has raised the possibility of re-establishing a network of government gas stations to avoid abuses. It would be desirable if this network were to be managed directly as a subsidiary of Pemex, as several transnationals do. In addition, every Monday the cheapest and most expensive gas stations are announced. This information, however, does not seem very useful, since in the final prices there are two components that vary according to the location of the gas stations, fuel quality, and logistics costs. In any case, the information that should be spread is the profit margin as a proportion of the final price to the consumer.

As a society, we must discuss the socially, economically and environmentally optimal level of fuel taxation that reflects environmental costs and discourages the use of private cars. A mistake in which the left should not fall is to join the chorus of the right that asks to reduce, or even eliminate, the income of the State from the consumption of gasoline. It is important to maintain the tax level, provided that a substantial part is used to finance public transport, the energy transition and the preservation of the environment.

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