Cofece confirms lack of competition in 97% of regional LP gas markets

The Federal Commission of Economic Competition (Cofece) finally determined the absence of effective competition conditions in 213 of the 220 relevant markets consisting of the distribution of liquefied petroleum gas (LP) to end users, through distribution plants and tankers with a dimension regional geographic, which should cause a change in the current regulation, such as ending the free market and continuing to control maximum prices through decrees indefinitely.

“This determination is fundamental because LP gas is a basic consumer good that directly impacts the purchasing power of consumers. In Mexico, it is the main fuel used by families and businesses to cook, heat water and generate heating,” he assured. the regulator in economic competition.

Derived from the analysis carried out by Cofece in file DC-001-2021, among other considerations to reach this determination, the high degrees of economic concentration observed were highlighted, where few economic interest groups have high participation in the defined markets.

Also, the high gross profit margins at the national level obtained by distributors, together with the existence of important economic and regulatory barriers to entry, as well as barriers to exit.

The Plenary Session of Cofece also accepted the participation of “commission agents”, especially in the Metropolitan Area of ​​the Valley of Mexico, whose conduct inhibits or hinders the concurrence of distributors in certain geographical areas, as detected by the investigative unit of the regulator in the file. .

And all this led to “the little or no entry of new distributors, despite the increases in profit margins”, since 2017, the year in which the market was completely opened.

In accordance with the current regulatory framework, this resolution was notified to the economic agents that demonstrated an interest in the procedure and – in accordance with article 96, section X, of the Federal Law of Economic Competition – to the Head of the Federal Executive Power, to the Secretary of Energy and the Energy Regulatory Commission (CRE).

The latter will be responsible for establishing, where appropriate, the regulation it deems pertinent, Cofece explained.

This investigation began in May 2021, when the procedure began to determine whether there were conditions of effective competition in the distribution not linked to LP gas pipelines at the national level, whose prices had then increased 11 times since the market was opened to private.

During this investigation, the Investigative Authority requested relevant information or documentation from the sector regulators, from the economic agents that participate in the market or attend to any person who collaborated with the investigation, as well as make use of other investigative powers.

Since August of last year, the CRE implemented the policy of maximum prices for LP gas, after the Emergency Directive for the well-being of the consumer of liquefied petroleum gas was published on July 28, 2021 to eliminate the “excessive and unjustified” for fuel distributors as a result of the release of the price of LP Gas.

From its implementation, which would last only six months, although in January of this year it was extended for six more months, the Ministry of Energy assured that the price of fuel decreased 15.1 percent.

But when this deadline expired, the government even changed to a new methodology used by the regulatory body in charge of the LP gas market, which divided the national territory for purposes of marketing the fuel, from 145 into 220 regions, and the weekly calculation of the Maximum prices for LP gas by region is carried out through a cost model, in which the type of plant that supplies the product is considered; as well as the initial investment; regulation costs; operating costs; plant management and maintenance.

In addition, the estimated costs and efficiency parameters are also taken into account; the sales volumes associated with each region; the estimated unit freight cost for each of the regions, and the marketing margin, which considers an Internal Rate of Return, among other parameters.

The current maximum price for this week in the national average for this fuel is 21.11 pesos per kilo, which is 16% lower than what was averaged in the last week without top prices of the oast year.

This national average price of liquefied petroleum gas (LP) decreased 3.8% compared to last week, so the cost of energy reached levels similar to those registered at the beginning of January last year.

For the fifth consecutive week the cost of energy fell, while in the reference US market Mont Belvieu, in the last five weeks there has been a 15% reduction in the spot price, which goes hand in hand with crude oil prices.