Government & Business Sector Reach Agreement to Stabilize Price of Natural Gas

SourceMex Economic News & Analysis on Mexico, January 17, 2001 | Go to article overview

Government & Business Sector Reach Agreement to Stabilize Price of Natural Gas


After several months of negotiations, representatives of the business sector and the government reached an agreement to stabilize the price of natural gas for Mexican enterprises. Under the accord, announced Jan. 16, the state-run oil company PEMEX will sell natural gas to businesses at a fixed price of US$4 per million BTUs (British thermal units) for the next three years.

PEMEX will cover the difference if natural-gas prices rise above US$4 per million BTUs, but companies will continue to pay that price even if international prices drop below the US$4 level.

"The agreement was possible because PEMEX has been able to acquire and will continue to acquire several risk contracts on the natural-gas market," said Energy Secretary Ernesto Martens Rebolledo.

The effort to lower natural-gas prices close to the US$4 level had already received a strong push in the Mexican Congress. The Senate recently approved legislation presented by two key committees to limit the cost of natural gas for Mexican companies to US$3.90 per million BTUs (see SourceMex, 2000-12-20). Business leaders were pushing for a similar measure in the Chamber of Deputies.

The price of natural gas in Mexico, which has been tied directly to the price in the South Texas market (Houston Ship Channel) since the 1990's, has risen to more than US$9 per million BTUs from about US$2 per million BTUs only a year ago.

Accord eases tensions between Fox and business sector

The new agreement eases the concerns among the business community, which had grown increasingly upset with President Vicente Fox for failing to take sufficient actions to shield the industrial sector from high natural-gas prices.

Fox was coming under increasing criticism from such heavyweights as the Consejo Coordinador Empresarial (CCE), the Confederacion Nacional de Camaras Industriales (CONCAMIN), and the Camara Nacional del Hierro y del Acero (CONACERO), which warned of continued plant closures and the loss of thousands of jobs unless the president took decisive action.

In an interview with the daily business newspaper El Financiero, CONCAMIN president Alejandro Martinez Gallardo accused the Fox administration of "offering only promises and no solutions."

Sergio Gutierrez Muguerza, president of the Camara de la Industria de Transformacion (CAINTRA) in Monterrey, was more blunt when he accused Fox of breaking the promise to take decisive actions to lower natural-gas prices early in his presidency. "We gave the new authorities a month and a half to propose a solution," said Gutierrez. "Now is the time to take radical action."

Some organizations had also discussed the possibility of filing a complaint with the government's anti-monopoly agency (Comision Federal de Competencia, CFC) against PEMEX.

But legal expert Ruben Fernandez said the anti-monopoly complaint was not likely to prosper because of its timing. "The industrial sector should have sought this action a few years ago when the formula to fix natural-gas prices was determined," said Fernandez.

Much of the anger of the business sector has been directed at Energy Secretary Martens, who has been the chief spokesperson for Fox's energy policies.

In particular, business leaders lashed out against Martens when he raised doubts about their concerns that high natural-gas prices had left many companies with insufficient funds to continue operating.

"It is impossible for companies not to have resources for production with only three months of volatility [in the natural-gas market]," Martens was quoted as saying.

Organizations representing small manufacturers took issue with Martens' statement. "He forgets about small and medium- sized enterprises, which are suffering the most," said Constantino Gianacopulos, president of the Sociedad Mexicana de Ceramica. "His attitude is preposterous and insensitive."

Many companies in northern Mexico involved in energy- intensive activities like steel production, mining, glass and ceramics manufacturing, and food processing had been forced to curtail production because of the increasing operating costs tied to higher fuel prices (see SourceMex, 2000-09-27). …

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