Tag: Sector

MEXICO CITY – President Andrés Manuel López Obrador has never lacked criticism of his predecessor’s legacy. But he reserved a particular disdain for the major overhaul that opened Mexico’s strained energy industry to the private sector.

He has called the changes a form of legalized “looting,” the product of corruption and resounding failure. He has suggested that some foreign energy investors are “looting” the nation and that Mexican lawyers who work for them are guilty of treason.

He is now formalizing his most aggressive attack on the measures to date.

A bill is expected to be passed in the next few days to strengthen the dominance of the Mexican state-owned electricity company. The measure, recently approved by the Mexican Congress with the firm support of Mr López Obrador, would also limit the participation of private investors in the energy sector. Both effects are of central importance for his long-term goal of restoring energy self-sufficiency and securing Mexican sovereignty.

Mexico’s reliance on foreign hydrocarbons was highlighted last month when a winter storm in Texas disrupted supplies of natural gas from the United States, the source of most of the natural gas used in Mexico. Mr López Obrador pointed to the resulting blackouts as evidence of the need to reduce dependence on foreign energy.

However, the legislation, hastened by the Mexican Congress by Mr López Obrador’s party, has been criticized by opposition lawmakers, environmentalists, industry analysts, Mexican and international corporate groups, and even Mexico’s antitrust watchdog almost everywhere.

Many critics see the bill as a political move to excite the president’s grassroots ahead of the June midterm elections, through which Mr López Obrador hopes to turn his party’s congressional majority into the super-majority required to amend the constitution.

Opponents of the legislation say that not only would it not revitalize the energy sector or help achieve energy independence, it would violate Mexico’s international commitments to reduce carbon emissions, violate trade deals, and further cool foreign investment in Mexico struggles to regain economic dynamism amid the pandemic.

Legislation also threatens to re-grasp the relationship between Mr López Obrador’s administrations and President Biden, which got off to a rocky start when the Mexican President became one of the last world leaders to congratulate Mr Biden on his election victory.

“I think the effects of this reform are a big reversal,” said Lourdes Melgar, who was a senior energy official in the administration of Enrique Peña Nieto, the predecessor of Mr López Obrador. The Mexican president, she said, “had a very nationalist view of resource management.”

She added, “He wants to bring private producers to their knees, and we see it in the most absurd way.”

Jeremy M. Martin, vice president of energy and sustainability at the Institute of the Americas, a public order think tank in San Diego, said the legislation is likely to resonate with supporters of Mr López Obrador, who have been made feel like it finally have a president who puts the Mexican people first.

“It doesn’t make economic sense, but it makes a lot of sense for people who feel like they’ve been screwed in Mexico for years,” he said. “It’s pure ideology, it’s political.”

The legislation would rewrite the rules for the electricity sector. Among other things, this would change the so-called shipping rules, which regulate the order in which plants feed their electricity into the national grid, and give higher priority to the plants of the state electricity company, the Federal Electricity Commission.

The energy market liberalization approved by Mexican legislators in 2014 gave priority to low-cost power generation, with increasing preference for solar and wind power plants, which led to an increase in private investments from Mexico and abroad in the renewable energy sector.

However, the new legislation restores preferences for government fossil fuel plants, which generate electricity at higher costs and cause higher CO2 emissions.

Mr López Obrador and his allies have argued that the bill seeks to correct a trend in the 2014 overhaul that gave private companies an unfair advantage.

“We level the ground, we establish clear rules, we prioritize national security,” said Rocío Abreu Artiñano, Senator of the ruling Morena Party and President of the Energy Commission of the Mexican Senate.

The current system, she said, “stifles” the Federal Electricity Commission.

When more than 4.5 million homes and businesses in northern Mexico lost electricity last month after Arctic weather froze cross-border pipelines and the Texas governor issued an order restricting natural gas exports, López Obrador said it was a lesson the need for energy independence.

Gas-fired power plants generate more than half of Mexico’s electricity. According to the Mexican government, the vast majority of natural gas is imported, with the majority coming from the United States.

“We always have to look for self-sufficiency and produce what we consume in Mexico: food, energy,” said López Obrador in mid-February when Mexico was recovering from the blackouts.

However, analysts and industry leaders say that although Mr López Obrador insists on moving Mexico to greater energy independence, the new legislation could actually make the nation more dependent on foreign energy sources by increasing reliance on fossil fuels, which it has to import .

While household energy bills are likely to remain isolated from price increases from government subsidies, industrial users could see an increase in electricity bills that they would likely pass on to their customers, analysts said.

“This has no economic logic,” said Víctor Ramírez Cabrera, spokesman for the Mexico, Climate and Energy Platform, a research group in Mexico City. He called the new model for power sourcing “absurd”.

Environmentalists and other critics have also devastated the legislation, saying it will undo hard-fought gains in cutting carbon emissions and put Mexico on a course that contradicts global efforts to combat climate change and goes against its international treaties and possibly his violates own laws.

Mr López Obrador said the government was planning to upgrade its hydropower plants, which will be given a higher priority under the new energy supply system, to help meet its climate change commitments. However, critics of the legislation are deeply skeptical.

“Under these conditions there is no way to keep the Paris Agreement,” said Ramírez. “Just give it up for dead.”

Equally worrying, critics say, is the negative impact of the legislation on FDI in Mexico. The law would essentially hamper many private renewable energy companies that have invested since the energy sector opened up and cripple their chances of making a profit.

“It’s going to hit them big and hard,” said Gonzalo Monroy, a Mexico City-based energy consultant.

Investors “came to invest in the country, trusting the rules and the law,” said Xóchitl Gálvez Ruiz, senator of the opposition National Action Party. “Overnight they are told, ‘You know what? I don’t like that, I’ll change the rules. ‘”

Analysts and industry experts say litigation against the law is inevitable, including potential challenges on the grounds that doing so may violate clauses in the U.S.-Mexico-Canada deal that replaced the North American Free Trade Agreement.

The legislation is just the latest what analysts say is a string of foreign investment violations by Mr Lopez Obrador, including the cancellation of a $ 13 billion airport project in 2018 and the lockdown of a partially built brewery in northern Mexico last year .

After the Senate approved the new law last week, the peso fell to a four-month low against the dollar. And a Reuters poll found the currency could be unpredictable for a few months, partly due to energy transition concerns.

“Investment levels are falling and nobody wants to invest here,” said Israel Tello, a legal analyst at Integralia, a Mexico City-based advisory group. “Legal uncertainty is the deadliest weapon against investment.”