Mexico City — Mexico’s energy sector regulator, the Energy Regulatory Commission (CRE), is struggling to adequately oversee the country’s energy market, according to CRE commissioner Norma Leticia Campos Aragón.
In an exclusive interview with Bloomberg Línea, Campos said the watchdog only has seven inspectors to carry out verification of the country’s entire energy market, and that, although there are coordinated verification efforts with other Mexican government agencies such as the National Guard, the CRE lacks sufficient personnel to inspect regulated companies in the country.
The CRE oversees 24,500 permits issued to public and private companies engaged in the oil and gas sector, LP gas, fuels, petrochemicals and bioenergy, as well as electricity generation, supply, and the import and export of electricity.
During 2022, the authority only carried out 347 verification visits regarding natural gas, LP gas and petroleum products, and 48 more to issue permits to companies in the electricity industry. To give a dimension to the problem, Mexico has 13,000 gas stations distributed in the 32 states of the country, and only carried out 235 verification visits in the petroleum products sector last year, according to its most recent work report.
In 2019, the CRE carried out 913 verifications, the highest number in the commission’s history in hydrocarbons, and 37 to permit holders in the electricity sector. The regulator faced budget cuts, in addition to having its activities limited by the Covid-19 pandemic since 2020, and it was not until 2022 when it was able to increase the number of permits approved when it received a budget increase.
“There is practically no verification,” Campos said.
The commissioner said there is still a “serious problem” of gasoline theft, and which affects the quality of gasoline available, and jeopardizes user safety.
She added that, even with the finances of the Mexican state from taxes, the CRE does not have the capacity to “be more rigorous” due to the lack of verification staff.
Although state-owned oil company Pemex has managed to reduce fuel theft since the beginning of the current six-year presidential term that began in 2018, the company still lost an average of 5,700 barrels per day of gasoline and diesel, equivalent to 7.1 billion pesos ($350 million) in value during 2022 due to illegal tapping of fuel pipelines, according to estimates made with data from the oil company.
To reverse the scarce verification of the fuel sector, the CRE needs financial autonomy to hire more personnel, as it obtains resources by charging for permits, but Campos explained that that decision depends on the CRE’s chief commissioner Leopoldo Vicente Melchi.
Irregularities
Since last year, Campos and fellow CRE commissioner Luis Linares Zapata have denounced more than 200 irregularities in the granting of permits for gas stations, as part of a frenzy of approval by the CRE’s governing body after three years of drought.
One of the most representative cases was when the president of the CRE defended the presumption of innocence of the shareholders of the Hidrosina gas station group before the commissioner’s accusations.
Campos explains that sometimes the requirements for approval “are not so rigorous” with the companies that request energy permits, but that this does not mean that the rest of the commissioners do not agree with the economic development of the country.
“Those are the confrontations that are observed from the outside, but in no way is that we don’t all agree that we want national development, we do want national development, and we do want to bring order [to the energy sector],” she said.
More permits?
The CRE has almost 10,000 company procedures pending approval, of which 7,887 correspond to hydrocarbons and 858 to electricity, while 1,218 more are in the pre-registration process.
Campos said there is a lack of knowledge of some applicants, even of the minimum investment amounts to build a service station, and which end up in a permit being denied.
“It is not that there is paralysis, it is that the requirements are tougher,” she added.
On the issue of electricity generation permits, the commissioner said that there was a policy of dismantling the state-owned CFE with the opening of private investment in energy production with the 2013 energy reform, and she compared the national electricity grid to a clothesline on which more clothes were hung than it could hold, and for that reason there is saturation in the transmission lines where new power plants can no longer be installed.
“We need investors to invest, not to recharge the state’s budget,” she added.
The CRE commissioner added that there do have to be agreements between the government and the private sector to increase the electricity transmission infrastructure, but acknowledges that there is a “tremendous mutual distrust”.
She said Mexico needs a strong energy regulatory body after the imposition of an imported energy model, through the opening to private investment since 1992, and with the 2013 energy reform, in a country with more than half of its population living in poverty.
“Now we have to bring order to a model that is not made for the characteristics of our country,” she said.
The CRE is in charge of regulating the transportation, storage, distribution, trade and retail sales of fuels derived from oil and gas, in addition to the generation, sale and distribution of electricity.
