The owner of a Sonora-based gas company has thrown his support behind the federal government’s plan to create a new state-owned LP gas distribution company, saying it will help lower prices and break a monopoly in Baja California.

President López Obrador announced last week that the state oil company Pemex would establish the new utility within three months. Gas Bienestar (Well-Being Gas), as the new company will be called, is needed to create additional competition in the LP gas market because it is dominated by five large companies and gas prices have been rising “unjustifiably” above inflation, he said last Wednesday.

Jorge Alberto Elías Retes, owner and president of Blue Propane, said he approved of the president’s proposal, saying the entry of the new company into the market will help drive LP gas prices down in cities across Mexico.

He also said Gas Bienestar’s arrival in Baja California will put an end to an effective monopoly in the northern border state.

Companies owned by members of the Zaragoza Fuentes family have long controlled the gas market in the state, Elías said, adding that the family has created new firms in order to give the impression there is competition when in fact there is not.

“For more than 20 years in Baja California, 12 members of the Zaragoza Fuentes family have controlled 58 permits for the storage, sale, distribution and transport of liquefied petroleum gas,” he said, adding that federal and state authorities have failed to “sanction them for the control they maintain over the market.”

Putting an end to such monopolies is urgent because they affect the nation’s poorest families the most, Elías said.

“… LP gas monsters across the country and particularly in Baja California have distorted the market to benefit themselves at the expense of the most humble families,” he said.

Grupo Tomza, owned by the Zaragoza family, is one of the five large companies López Obrador was referring to last week, the news website Forbes México reported.

Blue Propane’s attempt to enter the market in Tijuana – where gas prices are among the highest in the country – was stymied by a series of legal impediments that prevented the opening of 10 LP gas distribution points, Elías said.

“… We’ve been victims of this gas cartel that has paid off authorities of the three levels of government,” he said, claiming that the Zaragoza family has financed political campaigns in Baja California for decades.

Lawyers for Blue Propane say that Zaragoza companies have co-opted officials to create a network of institutional support that makes it practically impossible for a new firm to enter the market in Baja California.

The president of the LP gas industry association Amexgas also said that the creation of a state-owned gas distribution company is a good thing, provided it enters the market on a level playing field.

Carlos Serrano told the newspaper Milenio that Gas Bienestar must compete under the same rules that govern private gas companies and if that is the case its competition is welcome.

Others have questioned the wisdom of the government’s plan to create a state-owned gas companies, among whom is economic analyst Gabriela Siller. She said last week that the plan was concerning for a range of reasons, including the high cost of creating a new company.

Víctor Ramírez, spokesman for the Mexico Climate and Energy Platform, a renewable energy advocacy group, raised concerns about the cost of creating a new company from scratch.

“I don’t see it being a good strategy, it’s going to be very expensive,” he said in an interview, asserting that buying delivery trucks and purchasing and setting up storage terminals alone will cost about 11 billion pesos (US $548.9 million) at a “very conservative” estimate.

Ramírez also said it’s doubtful that a new company will be ready to enter the market within three months, as López Obrador claimed would occur.

“Having this in three months and having a subsidy to reduce the price of gas is very complicated,” he said, adding that creating Gas Bienestar will cause Pemex’s debt – already above US $100 billion – to grow.

In addition, Ramírez predicted that the government will end up creating a substandard company.

“…They won’t achieve something important but what they will achieve is to raise Pemex’s costs,” he said.

Beatriz Marcelino, head of energy consultancy firm Grupo Ciita, agreed that it is unlikely that the government will have a new company ready to go in three months. Obtaining the necessary permits, provided there are no delays, will take at least eight months, she said.

“We doubt that it can be done in three months,” Marcelino said, noting that the Energy Regulatory Commission (CRE) can take more than a year to grant gas distribution plant permits. Environmental impact assessments can take up to six months to complete, she said.

Serrano said that more than 2,000 permit applications, including ones filed two years ago, are awaiting approval by the CRE.

Marcelino said the government won’t want to wait for more than a year to obtain the necessary permits to allow Gas Bienestar to begin operations and expressed concern that it could seek favorable treatment from the CRE, whose governing body is conveniently stacked with people hand picked by López Obrador, a situation that experts warned could cause the regulator to lose autonomy.

With reports from El Financiero, Forbes México and Milenio