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Mexico’s ‘Gasolinazo’ and the reality of energy deregulation
 
La Voz Staff Photo
 

By David Conde
News@lavozcolorado.com
 
01/11/2017

Mexicans, Mexicans in the United States and Americans with relatives south of the border find themselves under another burden that many explain to themselves as being just another corrupt government grab at their pocketbooks. A 20 percent increase in the cost of gas makes for a bleak Christmas, a discouraging New Year and a terrible 6th of January celebration of the coming of the Magi Kings to visit Jesus in Bethlehem.

Called “el gasolinazo” by the community and the media, this government action that suddenly raised the price of gas by one-fifth, hit the Mexican public like a bucket of ice water and created the conditions for demonstrations and violence across the country. Although common in the United States where gas prices can double or can be cut in half in a relatively short time, Mexicans did not expect this from Petroleos Mexicanos (PEMEX) the national monopoly.

The volatility of fuel prices caused by the laws of supply and demand around the world along with some manipulation on the supply side by OPEC have been an issue in America, but not to the extent of changing the political calculations of the community or those in power. Not so in Mexico where the average wage is $4 a day and the 60 cent increase on the already struggling car owner can be catastrophic.

On top of this, Mexicans tend to relate the rise in the cost of fuel to the rise in the prices other commodities especially those on the kitchen table every day. We are already hearing that the price of tortillas has gone up and it is because of the increase in fuel.

When President Lazaro Cardenas expropriated the private holdings of oil companies and nationalized the petroleum industry in 1938 there was an assumption and even an expectation that this national wealth would be of direct benefit to the everyday citizen. In Venezuela, for example, this benefit has allowed the public to buy gas for less than 2 cents a gallon.

By the way, Venezuelans are also up in arms because the government has just increased the price of gas to 38 cents a gallon. Although Mexico has never offered that kind of subsidy, there has been an expectation that there would be a subsidy along with some stability in the price.

One of President Pena Nieto’s major agenda items on which he ran was energy reform that included the introduction of foreign investment to Mexico’s petroleum industry. This concept also included the deregulation of the energy sector so that the prices would obey the laws of supply and demand.

Mexico is the 10th largest oil producer in the world at a little under 3 million barrels a day and the government has historically used the revenues from this to fund desperately needed social programs for the poor. This policy will no doubt continue.

PEMEX however, is being recapitalized in part by private sector partners that expect a return on their investments at a rate consistent with world energy prices. So this puts the Mexican government in the peculiar position of having to chose between funding social programs across the country or taking some of that money and using it to subsidize the price of gas.

It seems that for the time being at least, the Mexican government has decided to deregulate the price of fuel and let it float and seek its market level. Therefore, for the time being at least, there will be no discounts at the pump.

 

 

 

 

 
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