Cofece’s intervention in the energy market: good intentions, bad results

The Plenary of the Federal Economic Competition Commission (Cofece or Commission) determined the existence of five barriers to competition and free competition that generate restrictions on the efficient functioning of the markets for primary and secondary marketing, internal and external storage, as well as the sale of jet fuel

The barriers identified, as well as recommendations and orders to eliminate them are:

Barrier B-1 in the relevant market of primary commercialization. There are provisions of the regime of prior import permits that limit the entry and stay of economic agents.

It was recommended to the Ministry of Economy and the Ministry of Energy to modify various agreements that limit the importation of jet fuel.

Barrier B-2 in the relevant external storage market. There is a scarcity and lack of access to external jet fuel storage infrastructure, which inhibits the ability of current and potential entrants to compete in the relevant trading markets.

The Energy Regulatory Commission was recommended to increase the possibility for traders to access external storage infrastructure without discriminatory restrictions.

Barrier B-3 in the relevant external storage market. Most of the capacity in the country is contracted with Pemex Transformación Industrial and there are no maximum limits to its reserve capacity, limiting the entry of competitors.

The Energy Regulatory Commission was recommended to establish a regulation that determines the maximum participation of Pemex Transformación Industrial in the capacity reserve in external storage facilities at the regional level.

Barrier B-4 in the relevant secondary marketing and supply markets. Airports and Auxiliary Services is vertically integrated into various segments of these relevant markets, and has not completed its functional, operational and accounting separation, which restricts competition in secondary marketing and supply.

It was recommended that the Ministry of Communications and Transport Infrastructure, the Ministry of Finance and Public Credit and the Ministry of Public Administration evaluate and, if necessary, modify the current Organic Statute of Airports and Auxiliary Services, so that it complies and guarantee the obligations of separation of marketing and storage activities, in the terms ordered by the Energy Regulatory Commission.

The Board of Directors of Airports and Auxiliary Services was ordered to comply with the obligations of functional, operational and accounting separation, making a clear distinction in the separation of the functions, procedures and personnel of the administrative units responsible for the commercialization activity and the activity storage, ordered by the Energy Regulatory Commission, including the publication in the Official Gazette of the Federation of the Manual for the Organization of Airports and Auxiliary Services.

Barrier B-5 in the relevant internal storage and retail market. Some concession titles for the operation and administration of airports contain exclusivity clauses in favor of Airports and Auxiliary Services and, although these provisions ceased to be in force with the entry into force of the Hydrocarbons Law, they could indirectly be limiting competition to incoming at the outlet.

With compliance with the recommendations and ordered measures, a greater entry of competitors is expected in the markets that make up the jet fuel value chain, which will be reflected in better prices for the final consumer. Cofece reaffirms its commitment to monitor public or private actions that may affect competition conditions to the detriment of the efficient functioning of the markets and to the detriment of the welfare of consumers.

However, not everything is hunky-dory: the legal force of the recommendations does not go beyond an opinion and Cofece has already lost a matter related to the airport slots by imposing orders on other authorities, precisely in a process of barriers to competition, which was declared unconstitutional by the Judiciary. In addition, the air market barely represents 3.08% of the national transport market.