Market reaction sceptical of CENAGAS’ process to supply Mexico’s Sistrangas

Gas market participants concerned over transparency

CENAGAS says 11 companies submitted proposals

Similar project planned for launch by mid-year

MEXICO CITY (ICIS)–The process Mexico’s natural gas transmission system operator (TSO) CENAGAS opened on 18 December to supply natural gas to the national Sistrangas gas grid during contingency situations drew mixed reactions from market participants.

Market sources questioned the timing of the request for proposal (RFP)’s issue date, shortly before one of the main holiday seasons in Mexico and the US, the timeline for the process, as well as the contract chosen for the services.

An executive at a leading international company expressed dissatisfaction over the model chosen for the future contract, describing it as different from the framework contract generally used for similar transactions.

The source also said using Mexican pesos instead of US dollars as the transaction currency will most likely not guarantee better prices and economic conditions for CENAGAS, which was one of the stated goals of the process.

Another international firm executive described the timing of the RFP as “absurd” as it only effectively gave six business days to prepare a proposal during a time of year when most people are out of the office, a sentiment shared by the other market participants polled. The process was launched on 18 December and proposals were due on 31 December.

The motivation for the timing also raised some suspicions. While one market participant questioned the transparency of the process saying that the RFP was almost tailor-made for state-run companies Pemex and CFE, another one said it showed a “lack of knowledge” on the part of the remaining staff at CENAGAS. This source added that it was possible that the RFP could have been more of a price discovery exercise for CENAGAS.

Conversely, another market participant said that CENAGAS usually launches its processes at short notice and described the decision to launch a competitive process for the supply service as positive for the market.

The source said it is understandable that some market participants think they are not competing on even ground with Pemex and CFE. However, the market participant said that, in this case, the timing of the RFP may have more to do with time constraints than anything else.

RFP moves forward

In spite of the timing, the RFP seems to have attracted significant interest. A total of 11 proposals were submitted to the TSO, with the original timetable still on schedule, the CENAGAS team responsible for the process told ICIS.

The process is currently in the clarification stage and the winners are expected to be announced on 15 January.

Officials at CENAGAS said that they have been in constant communication with prospective participants since the RFP was issued. Although the officials recognised that some participants could have found the time to prepare bids was short, they said that the timetable was drafted in order to launch the project when they needed it.

CENAGAS said it sees the RFP as a sort of pilot program that can serve as precedent for future processes. The intent is to launch a new bidding process, probably by mid-year.

They said the contract model was created ad hoc for the process, using as a reference other supply contracts. The intention, according to CENAGAS, was to have each contract enforced under equal circumstances.

CENAGAS said it will develop an online tool to publish the auctions for the contingency service on the dates they are needed. They said the information on the purchased gas volumes and the amounts paid for the service would be made publicly available.