Amid Gas Protests, Mexican President Denies Price Hike Linked to Energy Reforms

By Mark Browne | January 5, 2017 | 5:28 PM EST

Residents steal gasoline and diesel from a gas station following protests against an increase in fuel prices in Mexico’s Veracuz state on Tuesday Jan. 3, 2017. Nationwide protests continued as small groups shut down or looted gas stations and blocked roads to protest a price deregulation that has sent the cost of fuel up by as much as 20 percent. (AP Photo/Erick Herrera)

Mexico City (CNSNews.com) – Facing a tide of violent national protests, including vandalism, highway blockades and gas station occupations, Mexico’s president on Wednesday defended the government’s decision to raise gasoline prices by between 14 and 20 percent.

President Peña Nieto denied that the price hike was a result of the nation’s recent energy reforms, or a result of tax policy.

Analysts, however, disagreed, arguing that inefficiencies and corruption in the state-owned energy company Pemex and the government’s need to replace lost revenues due to a decline in oil prices led to the price-hike decision.

Calling the increase in the price of gasoline “painful,” “difficult,” but “unavoidable,” Peña Nieto said higher prices “reflect an increase in the international price of gasoline.”

“It is a responsible measure that is consistent with what I have decided is a priority of my administration, preserving our economic stability.”

The price hike, first announced last month, is expected to lead to an end to government control over gas prices, Reuters reported.

The most widely sold gasoline was set to rise to 75 cents per liter while the premium grade was set to increase to 83 cents. At 75 cents per liter, the price of a gallon of gasoline in Mexico would be $2.83 in U.S. dollars.

In his remarks, which came during an announcement of changes to his cabinet, Peña Nieto did not directly address the violent protests sweeping the nation in response to the hike in prices which took effect on Monday.

The national distributor of gasoline G500 said Wednesday it had closed 50 gas stations and would shutter a total of 400 due to vandalism and violence by protestors, according to the Mexico City daily El Universal.

The gasoline distributor threatened to close all 1,400 gas stations it operates in Mexico if the government could not guarantee their security.

Pemex has warned that protestors blockading gas stations have brought gasoline supplies to critical levels in the states of Chihuahua and Baja California in the north, and Morelos and Durango.

It said if blockades continued, airport operations in Chihuahua and Baja California could be affected.

Four days of protests have included the blocking of highways by protestors in the cities of Puebla and Mexico City, and in seven states, local media outlets report. Vandals have also struck several stores.

Energy reforms passed in 2013 and 2014 opened up Mexico’s energy market to foreign participation in exploring, producing, sale, import and refining of fuels, except for the natural gas market which was opened in 1995, according to Mexico energy expert Miriam Grunstein of Brilliant Energy Consulting.

She said 53 percent of the gasoline consumed in Mexico is refined in the U.S., with the rest refined in Mexico by Pemex.

Many foreign companies have applied to import and sell gasoline in Mexico, but none are doing so at the moment.

Grunstein said federal tax authorities still control the price gasoline today, which is sold exclusively by Pemex and its authorized distributors.

She blamed the price hike on the government’s need to replace revenues lost due to a recent decline in international oil prices.

“Mexico has depended historically on oil revenues. What they need is to compensate the fall in oil revenues, so they are compensating with gasoline because they need the money for public finances.”

Adrian Navarrete, chief engineer at the energy consultancy Consultores en Energia in Mexico City, agreed.

“It’s a price rise that is necessary because the government needs the money.”

Corruption, poor planning, inefficiency and high operating costs at the state oil company Pemex make the oil produced by Pemex more expensive, and thus raise the cost of the gasoline made from refined Pemex oil, he explained.

“Mexicans should not have to pay for the corruption and inefficiency of Pemex. This higher price really is to make the price of gas in Mexico equal to the cost of production which is inflated by corruption. Someone has to pay for it.”

The result of the price hike, Navarrete said, would be to make gas prices in Mexico equal to what consumers pay in countries that don’t have the oil resources Mexico enjoys.

Both analysts also agreed that the theft of oil from Pemex distribution lines in Mexico is a serious problem.

A report released last year by the international risk consultancy Stratfor said that fuel theft by drug cartels cost Pemex US$1.16 billion in 2014.

Pemex did not respond to requests for information on the amount of fuel lost annually to illegal taps into its pipeline network.

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