Fernando Flores
Director General
SIFRAP
/
Expert Contributor

Maintaining Free Competition in the Fuel Sector After COVID-19

By Juan Fernando Flores Ruiz | Fri, 08/14/2020 - 14:05

The challenge of emerging triumphant from the impact of COVID-19 has lasted longer than we expected or wanted. Similarly, companies have seen a greater economic impact than they expected in their operations.

Particularly in the fuel sector, the entire value chain has been affected, from exploration and production to storage, transportation, marketing, transportation and the end user. There is no space in the sector where the impact of the pandemic has not reached.

Beginning in March of this year, the world witnessed a drop in oil prices due to the drop in demand derived from the almost null or null mobility of people due to confinement.
This meant that measures had to be taken so as not to over saturate the world market, and in many cases stop production, which resulted in serious affectations on the fuel sector value chain and its prices.

It should be noted that one of the factors that regulate the price of fuels in Mexico is the fiscal stimulus applied to it by the special tax on production and services (IEPS), which since March of this year has a policy of 0 percent of stimulus.

Also in March of this year, the government institutions that are in charge of regulating projects in the energy sector, including fuels, declared the suspension of the legal terms and conditions to grant permits, among other procedures. This directly affected the investments that were in progress and those scheduled.

As for the service stations, as the demand for fuel fell as a result of this pandemic, their income automatically fell. In this case, the ONEXPO company registered that in some service stations the reduction was up to 70 percent. In addition to the fact that the expenses to keep the facilities sanitized and in accordance with the sanitary specifications increased the expenses in infrastructure and supplies for the companies. Resulting in an economic impact for companies, their users and their employees. 

The chain of consumption was affecting everyone in different ways. The companies stopped their units or reduced them, this caused that they did not buy fuel from their traders, who in turn did not buy from importers and they did not buy from refineries in the United States. The entire chain of self-consumption was altered. This same chain of effects negatively impacted fuel transporters and warehousing by lowering demand. As we can see with all these antecedents, the entire fuel value chain was affected, from who produces them to who consumes them and not only by the COViD-19 factor, but by several factors that were added throughout this global strike.

It is important to highlight that the role of the Mexican government has been in favor of strengthening PEMEX as the only and strongest national supplier that should exist in the market, returning it to its original state of monopoly. Consequently, free competition for fuels has been weakened. Followed by actions based on discrediting the competition and the competitors that currently exist in the import, commercialization and sale of fuel. I have therefore mentioned a lot that I am in favor of PEMEX being one more competitor in this free market competition but by making its own merits and providing a better service with competitive prices, as well as the quality of its fuels. 

The Energy Regulatory Commission (CRE) recently published its 2020-2022 Strategic Plan, stating that the activities for which it was created will be carried out with impartiality to promote investments and the development of the sector in Mexico.

It states verbatim on page 14 of this Plan:

The change in the orientation of the Public Policy on Energy Matters of the present administration with the objective of recovering energy sovereignty, increasing the national production of hydrocarbons and positioning the energy sector as a lever of national development for the benefit of the population, made it necessary a review and preparation of the 2020-2022 Strategic Plan, to ensure that institutional planning is aligned with the new guidelines proposed by the federal executive through energy policy.

SOURCE: 2020-2022 STRATEGIC PLAN PRESENTED BY CRE


Said paragraph tells us about a rescue of the energy sector putting energy sovereignty first, giving priority to State companies. As I have been saying in this article, it is not bad that these companies are strengthened, only that we must do it along with any competitor and that each one demonstrates its quality in the service and product.

There are clear rules with the legislation we have concerning the Energy Reform, so that there are optimal conditions for free competition. Especially after this economic slowdown due to the pandemic, with the tools we have, such as incentives, access to obtain permits and studies from the authorities, we must support the entire sector in a timely way. 

Solutions that can help us continue with a better united and developed energy sector after this pandemic: 

  • Continuous improvements in regulation, this from both parts of both the regulated and the regulator
  • Positive fiscal scenarios for the development of projects
  • Working tables with new technologies for the generation of fuels and energy with all those involved to find the benefits and can be applied
  • Total and free competition for new and existing competitors, as much as current Laws allow
  • Full support to companies to carry out their business plans to the new normal due to the pandemic, both due to the economic slowdown and the new financial costs that facing the pandemic brings
  • That all the agencies involved in the start-up of an energy project align themselves with the strategic plans for the development and implementation of the sector.


Let's make use of all the good that exists so that EVERYONE, including the state company, reactivates and can have better financial conditions.

Photo by:   Fernando Flores

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by Juan Fernando Flores Ruiz