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Mexican regulator slams plan to regulate cooking gas prices

July 28, 2021 GMT
FILE - In this July 1, 2021 file photo, Mexican President Andres Manuel Lopez Obrador waves after giving a speech at a ceremony marking the third anniversary of his presidential election at the National Palace in Mexico City. Mexico's anti-monopoly regulator has on Wednesday, July 28, 2021, openly criticized President Lopez Obrador's plan to set a maximum price for cooking and heating gas.  (AP Photo/Fernando Llano, File)
FILE - In this July 1, 2021 file photo, Mexican President Andres Manuel Lopez Obrador waves after giving a speech at a ceremony marking the third anniversary of his presidential election at the National Palace in Mexico City. Mexico's anti-monopoly regulator has on Wednesday, July 28, 2021, openly criticized President Lopez Obrador's plan to set a maximum price for cooking and heating gas. (AP Photo/Fernando Llano, File)
FILE - In this July 1, 2021 file photo, Mexican President Andres Manuel Lopez Obrador waves after giving a speech at a ceremony marking the third anniversary of his presidential election at the National Palace in Mexico City. Mexico's anti-monopoly regulator has on Wednesday, July 28, 2021, openly criticized President Lopez Obrador's plan to set a maximum price for cooking and heating gas. (AP Photo/Fernando Llano, File)

MEXICO CITY (AP) — Mexico’s anti-monopoly regulator on Wednesday openly criticized President Andrés Manuel López Obrador’s plan to set a maximum price for cooking and heating gas.

Mexico imports much of its LP gas, and international prices have risen, leading to higher costs for Mexicans.

López Obrador tried this week to invoke emergency powers to decree a six-month price cap.

But the federal economic competition commission said in a statement that current law sets out a process by which regulators, if they find monopoly pricing practices, can impose price ceilings. It said such an investigation was started May 31 and hasn’t concluded.

The commission also warned that “price regulation could have consequences unintended by the decree, like shortages of LP gas.”

Experts said the proposed price cap hearkens back to decades past, when Mexico’s state-owned oil company Pemex imported LP gas and sold it at fixed prices to distributors. Now, private companies import much of the gas, and won’t do so if they lose money on it.

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“If the price controls reach a point where they (private firms) can’t cover the cost of the gas, they simply won’t deliver it and there will be shortages,” said Eduardo Prud’homme, a partner in the energy consulting and analysis firm Gadex. “Shortages will create a black market.”

If Pemex decided to try to serve as the importer and seller of last resort, that could create a classic problem of subsidies, with artificially cheap gas potentially being siphoned away to markets where it can be sold at market prices.

“Implementing this is going to be extremely complex,” Prud’homme said. “It is going to cost a lot of money and it isn’t going to solve the problem.”

The government is under pressure to do something.

One of the president’s key promises has been that basic fuel prices won’t increase above the rate of inflation, and the largely privatized market for cooking gas cylinders has made that unobtainable.

Mexico’s inflation rate is currently hovering around 6%. Cooking gas is used by 70% of Mexican households and home deliveries have almost doubled in price in some areas over the last year.

López Obrador said earlier this month he wants to create a government company to distribute cooking gas following the surge in LP gas prices. But part of Mexico’s energy reform almost a decade ago was intended to move away from fixed prices and state-owned industries, to create free competition in fuel markets.

The president says private gas distribution companies have inflated their profit margins and he says a state-run delivery company could charge lower prices.

Opposition legislators say Mexico doesn’t need, or have the money, to acquire tanker trucks and distribution hubs.

Mexico doesn’t produce enough gas from domestic oil fields, and refuses to approve fracking to obtain more. The country imports about 70% of the LP gas it uses.

Prices on the international market fluctuated wildly this winter and spring after winter storms hit Texas. That’s what gas companies point to as one factor in the price increases.

López Obrador has also launched a nationalistic campaign to end gasoline imports and stop or reduce exports of crude oil, by boosting domestic refining capacity. His pet projects include building oil refineries in Mexico, and he has also tried to rein in foreign companies that built wind and solar farms to produce electricity in Mexico.