Focus: Boiling over on the border: The reasons behind the gasoline protests in Mexico

At a gas station in Tijuana on Wednesday, cab driver Martín Canseco talked angrily about the dramatic spike in gasoline prices that has touched off protests that have sometimes turned deadly.

“I cannot feed my family, it’s too hard,” he said as the digits flew by on the pump filling up his van. “I don’t have any money left no more.”

His remarks echo those of millions across Mexico, where the government’s decision to accelerate increases to gas prices is part of a larger, more ambitious effort to reform the entire country’s inefficient and sclerotic state-run energy sector.

Most economists agree that a less regulated environment will better allocate resources and encourage much-needed investments.

The transformation was going to be difficult under ideal circumstances but conditions have quickly become more complicated in Mexico, where half the population lives in poverty and political leaders are churning through a new host of challenges, including one from the new U.S. president.

For many, the gas price increase was, in the words of a Mexican adage, the drop that made the glass spill over.

“People are already making miserable wages,” said Tijuana resident Israel Lopez, speaking in Spanish as he took a walk near the beach with his wife. “Can you imagine a guy making 600 pesos ($29 U.S. dollars) at a factory and he has kids and a family? What are they going to do?”

Each weekend since the price spikes were announced, thousands of angry residents have taken to the streets, prompting authorities to block freeway access into Mexico from San Ysidro.

In nearby Rosarito, a man intentionally drove his pickup truck into a group of federal officers.

Demonstrators protesting gasoline hikes in Tijuana on January 7th are met by police presence in Rosarito.

(Alejandro Tamayo / The San Diego Union-Tribune )

Across the country, at least four people have been killed and more than 1,500 arrested.

Mexicans call the price increase gasolinazo — literally, “gasoline blow” — and it has become a flashpoint for anger over much larger, long-simmering issues in Mexico that include chronic complaints about government patronage, favoritism and corruption.

Any bump in gas prices has an out-sized effect in Mexico. A recent study by Bloomberg found that along with South Africans, Mexicans spend the largest portion of their incomes on gasoline.

Even those who favor reforming Mexico’s energy system have blasted the way the government of President Enrique Peña Nieto has handled the politics of the price increase.

“They simply threw the baby into the water and said, ‘sink or swim,’” said Tony Payan, director of the Mexico Center at the Baker Institute for Public Policy at Rice University. “And of course, the baby is sinking.”

Some reasons why

In 1938, Mexico’s government nationalized the country’s oil industry. The move pushed out foreign companies and created Pemex, the state petroleum company that became, for many, a source of national pride.

But for decades, the energy industry was poorly run and riven with corruption.

Oil refineries, for example, operate so unproductively that even though Mexico is one of the world’s top producers of crude, one-third to one-half of the country’s gasoline is imported from the United States.

In an increasingly globalized economy and international energy landscape, the Mexican government heeded the calls of most economists to break up its state-controlled system that bred economic inefficiencies and distorted markets.

An overhaul of energy laws in 2013 has led to a series of reforms that touch virtually every segment of the industry, including the state-controlled power company known as CFE.

Mexico has opened its energy markets to foreign investors, with companies like San Diego-based Sempra Energy expanding their profiles in areas such as installing natural gas pipelines as well as breaking ground on solar and wind farms.

Energy reform included eliminating price controls on gasoline, which had been subsidized for decades, leading to an artificially low price.

“All the money the (Mexican) treasury is putting into gasoline subsidies — and it was in the billions, depending on the year — wasn’t going to education or infrastructure, public services, health care, you name it,” said Jeremy Martin, vice president of energy and sustainability at the Institute of the Americas.

On Dec. 27, Mexico’s finance ministry announced the price increase, which was expected. But the increase was not a small one. The price of premium gas would jump 20 percent and the price of regular gas 14 percent. And the increases would go into effect in just four days — Jan. 1.

What’s more, prices will go up another 8 percent in February to help complete the process of more flexible pricing.

“They said, let’s do it all at once, quickly and be done with it,” Payan said.

According to Payan’s figures, the price of regular gas jumped from about 12 pesos a liter (59 U.S. cents) to just under 16 pesos a liter (79 cents).

Public outcry was swift and while Peña Nieto’s political foes pounced and protests formed, people began hoarding fuel before the price spike went into effect.

And since then, some drivers without much money go to the pump, estimate how much fuel they can afford and hope it’s enough to get them to their destinations.

The impact was even more pronounced in border cities such as Tijuana, Ciudad Juárez and Nogales because of a long-standing government policy that indexed gasoline prices in Mexico to prices across the U.S. border. By indexing, gasoline prices in border towns were even lower than they were in interior Mexico.

But the indexing regime is going by the wayside as well, Payan said.

Tijuana drivers like Canseco say the 20 percent increase is actually higher than that.

“It went up 50 percent more,” he said.

Other issues

Another source of anger comes from the country’s gas tax, which accounts for about 50 percent of the price at the pump. Even though prices went up in January, the government decided not to reduce the gas tax.

Payan said the tax was not touched because the Mexican economy is struggling. .

“Mexico needs to increase tax revenue, not lower it,” Payan said. “So they’re not going to give in on that.”

When it comes to collecting tax revenue, Mexico ranks in last place among the 34 nations in the Organization for Economic Co-operation and Development (OECD).

The daily minimum wage in Mexico is just 80 pesos ($3.60 in U.S. dollars) and the announcement of the gasoline price increase came just days after congressmen voted themselves Christmas bonuses that equaled about $11,000 per senator and $6,500 per congressman.

“They do that all the time here,” said Alfred Avalos, who was getting his shoes shined on a Tijuana street corner Wednesday. “I think what really angers people is that this really came out of nowhere. People didn’t know what was going on until (the government) announced it and everybody just got irate.”

Many government officials also receive gasoline vouchers that are worth about $250 a month, Payan said. The voucher system is slated for the chopping block but still sticks in the craw of millions in Mexico, where the average household income equals $12,806 a year in U.S. dollars.

“The government, they’re the ones keeping the money,” said Canseco. “They said they have to raise gas prices … But they don’t cut their own salaries.”

Earlier this month, Peña Nieto appeared on national television, saying the government had to increase gasoline prices in order avoid raising taxes and cutting social programs.

“I ask you,” he said to the camera, “what would you have done?”

Peña Nieto’s approval numbers have dropped as low as 12 percent.

“The whole idea of increasing gasoline prices made sense from an economist’s point of view,” said George Baker, publisher of the Mexico Energy Intelligence newsletter. “However, it did not make sense from a political point of view.”

Instead of increasing the price 20 percent, Baker said the government should have taken a more gradual approach, raising prices between 2 to 5 percent.

Payan suspects the Peña Nieto administration chose to opt for a big gas price increase as part of a political calculation.

“The presidential election is in June 2018 so I think they decided, let’s just do it all at once, go through the pain this year, a year and a half away from the election, in the hope that the Mexican people quickly forget it,” Payan said in a telephone interview.

Hard times and Trump

The gasoline protests come at difficult time for Mexico.

Global oil prices are creeping up while the peso is plunging in relation to the U.S. dollar.

Earlier this month, Ford announced it would stop construction of a manufacturing plant in Mexico that would have employed 3,600 and build the plant in Michigan instead. Ford’s CEO said the decision was a “vote of confidence” in the pro-business environment promoted by Donald Trump.

Trump has vowed to renegotiate the North American Free Trade Agreement (NAFTA) and Wednesday Trump made good on his campaign promises to build a wall along the border and crack down on immigration enforcement.

Criticized by his political opponents for meeting with Trump before the new president took over, Peña Nieto responded to Trump’s executive orders by canceling a visit with the new American president.

The hike in gas prices appears to be having an inflationary effect on the Mexican economy. The country’s statistics institute reported this week that inflation in the 12 months through mid-January shot up to its highest rate in more than four years.

“In Mexico, everything moves by truck,” said Baker, who is based in Houston. “Think about rural Mexico where there are no railroads. Think about the whole country where the delivery system is mainly a function of trucks. So gas prices go up and that price is passed along to all consumers.”

Higher gasoline prices in Mexico may prompt more people who live in places like Tijuana to drive their vehicles across the border to fill up.

At an Arco station in San Ysidro, just two miles from the Mexican border, a steady stream of cars with Baja plates pulled up Wednesday afternoon. But some of the customers from Mexico said they usually fill up with U.S. gas, regardless of price, because they think it’s of superior quality.

“It’s way better,” said Tijuana resident Angel Sanchez. “I can see the difference in power, the difference in (fuel) economy. I don’t like (the gas) over there, for sure.”

Adolfo Cortez, filling up his Toyota, said he watches the prices closely and said the prices in his hometown of Tijuana are about the same as in the U.S. “But maybe it will be cheaper here by March,” he said, looking at what will happen when February’s 8 percent increase takes full effect.

Such careful calculations don’t surprise Payan.

“Border-landers are natural economists. They are natural hedgers. They consume medical services on the Mexican side because they’re cheaper and and they consume clothing and other goods on the U.S. side because they’re cheaper. Well, gasoline will enter the mix.”

Martin at the Institute of the Americas said the government handled the gasoline spike poorly but said in the long run, energy reform will help Mexico and its people.

But he offered a caveat:

“Institutional development — transparency, removing corruption from the system — it all has to be done concurrently with the openings to private investments so there can be a full seizing of the opportunity.”

Back in downtown Tijuana, Alan Mungia watched as an attendant at one of the omnipresent Pemex stations filled up his Dodge Ram.

An employee of a private security company, he said he’s unhappy with the price increases and blames the government.

“They punch my bucket, take my money and go,” he said, prompting a knowing laugh from a nearby motorist.

This story has been updated to more give more specifics on the price increase in pesos and the equivalent in U.S. currency.

rob.nikolewski@sduniontribune.com

(619) 293-1251 Twitter: @robnikolewski

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