Far from saving consumers money, the lifting of government controls on the retail cost of gasoline next year could see pump prices rise by 22.5 percent, according to analysts at Citibanamex.
The Mexican Congress this week agreed to bring forward the liberalization of gasoline prices, originally set for implementation in January 2018.
The Citibanamex report suggests that aligning gas prices with international markets could mean motorists forking out as much as 16.60 pesos per liter in 2017. The current price of Magna gasoline is 13.98 pesos per liter and diesel costs 14.45. The report cited variations in international oil prices and the peso-dollar exchange rate as the main factors that could cause sharp fluctuations in retail gasoline costs.
In answer to questions from Mexican senators, a statement from the presidency read: “The lifting of price controls will benefit and empower consumers by giving them the opportunity to choose the best service and price in their region,” adding that “it will create a climate of certainty for private companies investing in the sector.”
Allowing free competition in the gasoline station sector – for decades monopolized by state-owned Pemex – was a key element of President Enrique Peña Nieto’s energy reform package passed in the first year of his term. As of March this year, privately-branded gas stations have been able to operate and the government has allowed private companies to import gasoline for the first time since the late 1930s.
Although no major foreign oil player has so far decided to challenge Pemex and commit to the gas station sector, Mexican conglomerate Femsa has taken over 300 Pemex-franchised gasoline stations that it is rebranding as Oxxo Gas. Three of these are already operating in the Guadalajara metropolitan area.
However, interest in the country’s untapped oil and natural gas reserves – opened up to foreign investors as part of the energy reforms – has been positive, with three auctions of oil exploration areas in the Gulf of Mexico taking place since July 2015.
Laws enforced over the past 12 months have prohibited the Mexican government from raising gas prices above a three-percent ceiling compared to 2015. This will change after the first trimester of 2017.
The liberalization of gas prices will take effect in several stages, starting in two states – Sonora and Baja California – on March 30, 2017. Four more northern states follow on June 15, and three on October 30.
Jalisco, Nayarit and Colima are in the largest group scheduled to enter the free market era on November 30, along with Mexico City and 16 other states.
Implementing the measure regionally, and in stages, is designed to facilitate distribution and avoid any potential gas shortages, say officials at the Energy Regulatory Commission.
Between January 1 and March 30, gas prices will continue to be regulated by Hacienda (the Finance Ministry). Although not yet announced, some analysts say a government-sanctioned hike of between two and three percent is likely to kick in at the beginning of 2017.
Speaking at an economic summit in Guadalajara this week, Central Bank Governor Agustin Carstens said consumers will have to “get used to” fluctuations in the price of gas, just as they do with other commodities. He admitted inflation is likely to be impacted in the short-term but suggested prices will stabilize over time.
Citibanamex said if their prediction of gas hikes materializes, it could add around 0.95 percent to next year’s inflation figure.