Background on the Issue
The controlled price of liquefied petroleum gas (LPG) in Mexico is on the verge of erupting into a risky social upheaval if the Mexican government does not address it promptly and appropriately.
Distributors’ Concerns
LPG distributors assert that the government’s “price cap” has left them with no room for profitability.
After months of unsuccessful dialogue with authorities, their discontent is nearing a work stoppage that would leave millions of consumers without access to this essential hydrocarbon.
Although a strike announced for Tuesday, June 3rd was postponed by the distributors themselves due to the possibility of receiving a government response during that week, the threat of a labor stoppage remains contingent on official communication.
LPG’s Importance and Dependency
LPG is a basic input for millions of Mexicans, with 9 out of 10 households consuming it. Moreover, 80% of the LPG consumed in Mexico is imported from the United States.
The crisis faced by these companies, responsible for delivering LPG “to the last mile” or directly to millions of homes, stems from the minimal profit margin they now receive due to an inexplicable change in controlled price conditions.
Government Price Control History
LPG has been subject to government price control since 2021. No other product in Mexican markets has a legally established price ceiling.
This control was initially implemented during the administration of former President Andrés Manuel López Obrador, with the peculiarity that the combustible’s price could fluctuate based on international energy price changes and peso-to-dollar exchange rate variations.
Starting October 2024, with President Claudia Sheinbaum’s administration, the price cap began to exert pressure on sector entrepreneurs due to illogical changes in conditions set by authorities.
As a result, companies have had to lay off between 600 and 1,000 employees over the past seven months due to substantial losses.
Recent Government Actions
The current administration altered the formula, published in the Federal Official Gazette and enacted as law, to reflect international price changes locally and currency fluctuations.
This change has led to significant economic losses for distributors over the past seven months, resulting in job losses and business closures.
Amexgas CEO Rocío Robles Serrano highlights that distributors have reported job losses and financial statements to the Mexican Social Security Institute (IMSS) and the Tax Administration Service (SAT).
The distributors’ urgency and desperation have caused division within the sector, with independent distributors nationwide considering a strike that was eventually contained.
Amexgas prioritized dialogue despite months of being ignored. Recently, distributors provided condensed information to the Secretariat of Energy, who requested organized billing data. Distributors complied and await the subsecretariat of Hydrocarbons’ evaluation this week.
Social Implications and Resolution
The gravity of this issue lies in its potential social repercussions.
It’s clear that price control is not a viable solution for markets operating under freedom and competition.
The government’s Gas del Bienestar distribution program, a continuation of the previous administration’s initiative, continues to operate without profits and massive subsidies while failing to address the problem.
Whether common sense and logic will prevail in resolving this issue remains to be seen.
Key Questions and Answers
- What is the issue? The controlled price of LPG in Mexico, set by the government since 2021, has left distributors with minimal profit margins due to recent changes in conditions.
- Why are distributors concerned? The changes have resulted in substantial losses, causing job cuts and business closures.
- What is the significance of LPG in Mexico? 9 out of 10 households consume LPG, with 80% imported from the United States.
- What actions have distributors taken? After months of unsuccessful dialogue, distributors considered a work stoppage that was postponed. Amexgas prioritized negotiation, providing data to the Secretariat of Energy.
- What are the potential social implications? The issue could lead to significant social unrest due to LPG’s widespread consumption and the government’s price control measures.
