Resource information
In 1995 the Mexican government initiated
structural reform of the natural gas sector-reform that
permitted private investment in transportation, storage,
distribution, trade and marketing while maintaining a State
monopoly in production. It prepared a detailed regulatory
framework to implement the sector liberalization, including
an element to develop distribution systems through
concessions in specific geographic areas. The concessions
are bid and the winner is permitted physical exclusivity for
12 years in gas distribution but not in gas marketing. In
each concession award process a distribution geographical
area is defined and minimum consumer coverage targets are
established. Bidders present technical and financial
proposals, including a market demand study. The winning
proposal must be technically sound and offer the lowest
average revenue for the first five-year period. Densely
populated geographic areas pose a problem for exclusivity in
distribution. If the concession is granted to a single firm,
scale economies might be very attractive, but regulating a
mega-monopoly would be difficult. If the distribution area
is subdivided, economies of scale decrease while information
for comparative regulation increases. These and such
elements as technical characteristics of the geographic area
and potential for competition in related services were
considered when designing natural gas distribution
franchises for the Mexico City Metropolitan Area.
