Fernando Flores
Director General
Expert Contributor

Free Competition Reinforcement Needed in the Gasoline Markets

By Juan Fernando Flores Ruiz | Mon, 10/26/2020 - 13:30

Free competition has been effective at a global level, as we well know, since it is based on the assumption that the higher the offer, the better and higher the benefits that users can have. This implies that individuals can get the best products and services at the best prices, and at the end of the day, this would be reflected in their wallets.

However, clear and objective participation rules for companies operating in Mexico must be in place for this to be effective. In this way, we would have the foundation for competitive market growth.

It helps us to develop infrastructure to meet demand. In the case of the energy sector, it serves to supply oil companies with more than 12,000 service stations, of which nearly 9,000 sell the PEMEX brand. Another 3,500 are selling new brands that have been operating in the country for five years, thanks to the Energy Reform, which enabled them to sell and import products.

As we can see, users have the option to choose the highest quality and most affordable oil products on the market while this free competition exists. About 29 percent of the supply belongs to new brands in the general market.

Yet, CRE had not granted permits to new service stations since May of this year, arguing that it is conducting more thorough evaluations of applications for project start-up permits. The compulsory measures and the suspension of official time related to COVID-19 magnified that slow-moving scenario.

A meeting with the state executive branch was recently held, according to Reuters, where they called for no more permits to be issued to private companies in order to strengthen state enterprises. However, COFECE published an analysis summarizing their comments on allowing the fuel sector to compete freely.

It is important to note that those who are regulated must comply with the law and comply with CRE's requested requirements, which are:

  • Electronic application “permit for retail sales at service stations by starting operations”
  • Proof of payment
  • Acknowledgment of receipt, provided by SENER, of the document on the Social Impact Assessment 
  • Letters of commitment for regulatory compliance and insurance contracts
  • Service station design technical evaluation report, issued by a third-party specialist approved by ASEA
  • In addition, they must meet the requirements of ASEA, which are: Environmental Impact, Single Environmental License, Registration as a Waste Generator, Annual Operating License, Notice of Initiation and Completion of the Work and NOM's that apply.
  • It must only wait the period set by law, which is 90 working days as stipulated in Article 45 of the Regulation of the Energy Regulatory Commission.

In case this permit is not issued by the authorities and they do not argue any flaw in the process, omission of any requirement or a feasible resolution within the law, the regulated party may make use of the appeal for protection.

All of the above relates to the dispute between the REGULATOR and the PRIVATE REGULATOR. The establishment of a basis for free competition can be avoided and it is not necessarily a matter of taking the state company out of the market. Similarly, it can be seen from the market share figures that PEMEX is very well-positioned, since it was previously the only available option. Some of the new brands are still buying and adding fuel from this state-owned company as the NOMs allow.

On the subject of free competition, PEMEX, a state-owned company, loosened its discounts to its established buyers as of October. Since the discount previously was applied above 70 million liters of gasoline and currently they can get it with consumption of 4 million, they are getting about an MX$0.87 discount for consumption. We can speak of free competition derived from these actions, since each company can lower its prices or give its customers better market conditions so that they continue to buy.

The Federal Economic Competition Law mentions in its article 2:
The purpose of this Law is to promote, protect and guarantee free competition and economic competition, as well as to prevent, investigate, combat, effectively prosecute, severely punish and eliminate monopolies, monopolistic practices, illegal concentrations, barriers to free competition and economic competition, and other restrictions to the efficient operation of markets.

Therefore, as long as they comply with the rules and requirements for applying for a permit, those who are regulated should have no trouble obtaining one because both current energy and competition laws empower them to do so.

This is not a battle between the private sector and the state, but a free competition and an advantage for the end-user in offering high-quality, better-priced products and services that can be obtained from any brand that offers fuel, including the state-owned company.

Let us reinforce free competition and encourage the sector along the whole value chain, such as storage, transport and sales to the public, as to stand strongly against possible foreign investment will not bring benefits in terms of employment and a better economy for all.

Photo by:   Fernando Flores