Mexico seeks to extend LPG price cap indefinitely

Mexican energy regulator CRE plans to extend its price control measures over the LPG market indefinitely, according to a filing. 

The cap was put in place last year to protect consumers from rising hydrocarbons prices globally, and prices have increased since.

In the filing with regulatory improvement commission Conamer, the agency proposed a new agreement that would make adjustments to the cap currently in effect and remove its end-date of August 2022.

Local LPG distribution trade group Amexgas made a series of comments about the proposal, including that the price-setting mechanism remains too vague.

"There are concerns in the LPG industry that, when the [rules] are applied, logistical and operational costs necessary to develop the permitted activity will not be properly taken into account," Amexgas said.

The concerns stem from the fact these costs, according to the trade group, were not properly weighed by previous versions of the price freeze, which has been in force since August 2021.

CRE's failure to consider these additional costs have led distributors to seek cost-cutting measures, including suspending routes to remote regions, reducing payrolls through layoffs, and cutting down on investments in equipment, Amexgas said, adding that it had also forced some distribution stations to close definitively.

Moreover, the group criticized the regulator's decision to include an adjustment to avoid the maximum price set by CRE to rise above annual inflation. Amexgas also argued that the adjustment has been used inconsistently in the past.

"These adjustments ... besides being discretional and non-replicable, show inconsistencies in their application, generating different distribution margins for different regions in the country, in some cases leading to a restrictive and insufficient margin to cover operational and distribution costs."

Instead, the group proposed that the inflation adjustment be capped, and the parameters considered in its calculation made available to the public.

The price control mechanism was originally put in place by CRE for six months, and was extended in January for another six months.

The calculation of the cap has been criticized for being highly uneven across different regions, strongly reducing prices in and around Mexico City, but raising them in some remote locations.