Mexico competition watchdog issues dire verdict on LPG market

Competition watchdog Cofece has issued a final resolution on competition in Mexico's regional markets for liquified petroleum gas (LPG), saying almost all of them do not function properly.

According to the regulator, 97%, or 213 of the 220 markets, are affected by issues that stimy competition and are causing consumers to pay more than they should.

Some of the key issues include a high degree of market concentration, meaning few players hold most of the market share; consistently high margins across the country that have failed to attract new competitors despite their attractiveness, and important economic and regulatory roadblocks that make it difficult for firms to enter or leave the market.

An additional disfunction comes from the presence in many large urban areas of small informal distributors, known as comisionistas, who carry out their activities without permits and often under inadequate security conditions. Comisionistas block the access of legitimate distributors to certain areas, Cofece said. Last year, violent strikes by the comisionista sector paralyzed deliveries in Mexico City for two days.

Regulatory barriers exist as a result of market complexity, as firms must establish communications with five regulatory bodies, including energy regulator CRE, environment agency Asea, energy ministry Sener and the finance ministry, to comply with the regulatory framework.

While the final resolution from Cofece would theoretically enable CRE to intervene in the market, in practice a price ceiling has been in place since August last year. CRE was criticized at the time because it decided to issue the pricing policy without waiting for Cofece’s assessment.

Recent turmoil in the international natural gas market has also caused many industries to increase their LPG use, according to Independent Commodity Intelligence Services (ICIS), as the latter’s supply chain has been less impacted than LNG worldwide, with prices less affected by the crisis.