AMLO Increases Gas Subsidies to Keep Mexican Fuel Prices Stable

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President Andrés Manuel López Obrador’s promised during his presidential campaign to keep gas prices low in Mexico, a commitment that he kept and the timing now couldn’t be better.

Thanks to the 70 year-old public company PEMEX, Mexican can have stable low gas prices with out the company losing revenue, but only growth.

PEMEX (Petroleum of Mexico) is own by all Mexican citizens and having their fgoverment run the energy company for then. PEMEX, which by design is practically a none profit enterprised, was created to focus on the nation’s financial stability through its energy sector.

Since PEMEX is not a private corporation, it doesn’t have to answer to private shareholders such is the case with BP, Exon Movil, or Chevron.

Therefore PEMEX has more flexibility to make desitions based on the well-being of Mexican-working families and local business sector, and can inject some of its profits in a form of subsides two keep gas proves en check. Thi company (PEMEX) makes low but fair profits while is bypassing today’s gas hikes in prices.

For the week of June 11-17, the government will apply a subsidy of 100% of the IEPS quota to magna and premium gasoline, the Ministry of Finance published on June 10 in the country’s Official Gazette.

This means that consumers will not pay the IEPS fee of 5.49 pesos ($0.26) per liter for magna gasoline, the most consumed in Mexico, nor the 4.63 pesos ($0.22) per liter for the premium fuel.

In addition to these incentives, ‘green’ and ‘red’ gasoline, as magna and premium are known respectively, will be awarded the highest subsidy since March 5.

The governmental support for magna is 6.90 pesos ($0.33) per liter, and for premium 7.02 pesos ($0.34) per liter.

Fiscal stimuli have been successful in curbing the effect of international oil prices on gasoline prices in Mexico. As a result, it has prevented a further escalation in inflation, which in May was 7.65%.

According to government estimates, if the gasoline stimulus were not applied, inflation would be around 10%.

The retail price of magna gasoline was 21.73 pesos ($1.06) per liter as of Sunday, June 12, according to PETROIntelligence data. In the absence of the IEPS and complementary fiscal stimulus, the price of regular gasoline in Mexico would be $34.12 pesos ($1.66) per liter.

The subsidy strategy obliges the government to absorb 12.39 pesos ($0.60) per liter, which represents 36% of what would be the real price of a liter of gasoline in the absence of any stimulus or subsidy.


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