- BBC World News
The government of Andrés Manuel López Obrador (AMLO) made its “turn of the wheel” in the energy sector of Mexico.
The lightning reform of the Electricity Industry Law was approved at dawn on Wednesday in the Mexican Senate, with which the changes that the president wanted in this sector will go ahead once it is promulgated.
Among other things, the reform favorthis the generation of energy through state Federal Electricity Commission (CFE), to the detriment of private companies.
Currently, private companies of Mexico,United States, Canada and Europe are the largest electricity providers that later they sell to the government at auctions.
Meanwhile, some CFE generating plants are underutilized or stopped, something that López Obrador considers is “against the interests” of the country, which is why he decided to promote changes in the law
“[La reforma] It is to strengthen the Federal Electricity Commission, so that it does not cost consumers more electricity and so that they are not looting us, “said the leftist López Obrador, known for his opposition to the purchase of energy from private companies, on Monday.
These changes in the rules of the game have caused a conflict between the Mexican government and private companies affected, mainly those of North America.
The first claims
Since the AMLO initiative was known, the disagreement of the affected companies became palpable, inside and outside of Mexico.
The US Chamber of Commerce warned last month that the reform represented a breach of the Mexico-United States-Canada Treaty (T-MEC).
That free trade agreement prohibits governments from favoring state-owned companies.
“Such drastic changes would open the door for the reestablishment of a monopoly in the electricity sector and, we believe, would directly contravene Mexico’s commitments in the T-MEC,” said the vice president for the Americas of that organization, Neil Herrington.
Of 109 participants in electricity generation in Mexico, according to an official report from last January, 102 were private companies of national and foreign capital.
These companies warn that billions of dollars invested are at stake, as generating plants could lose their profitability.
In addition, they denounce that the reform promoted by the AMLO government does not guarantee access to the electricity grid public, since such access will be given when it is “technically feasible”.
Julie J. Chung, Undersecretary of the Department of US stateHe said there were “many aspects” of the reform “that concern the private sector.”
The Global Wind Energy Council and Global Solar Council, which group firms from the US, Canada and other countries, said in a joint statement: “The damage has already been done to the investment environment in renewable energy in the last two years, with national policy reforms such as this project. of law that represents an unequivocal threat to the investment of the local and foreign private sector “.
In Mexico, the Federal Economic Competition Commission – an autonomous government body – had recommended the non-approval of the reform, since “it could severely affect the process of competition and free competition in the links of generation and commercialization of electrical energy “.
“If it goes into effect, this could translate into higher final electricity supply rates, to be paid by consumers and / or the government through subsidies.”
But the president has already celebrated the approval of the reform, stating that he will not back down: “Now with the electricity reform we will be able to sit down with the companies and tell them: ‘Let’s see, let’s agree, this is fair.’
Why the changes?
Mexico nationalized the electrical industry in the 1960s, but Starting in 1992, the government opened the possibility for private companies to generate electricity, for own consumption or to sell it to the government or abroad.
Private participation grew in the next two decades, while CFE plants lagged behind due to lack of investment and maintenance.
“The energy reform of 2013 all it did was legalize by right something that de facto it was already happening: the participation of the private sector in the Mexican electricity sector “, explains to BBC Mundo Israel Solorio, an expert from the National Autonomous University of Mexico.
The reform now of López Obrador, indicates Solorio, “dismantles” the market policy implemented in 2013, which contemplated the purchase of electricity from private companies through auctions.
Now the Cenace (National Center for Energy Control, a state entity) freely choose who to buy from energy, without auctions that López Obrador described as “perverse scheme devised with the sole purpose of guaranteeing the profitability of the investments of private generators to the detriment of the CFE.”
But there are experts who assure that the auctions of energy sales they are the best mechanism to ensure access to electricity at the cheapest price possible by forcing companies to compete.
The AMLO government considers it a priority to regain control of the State over the electricity sector as it is strategic for the country.
“What it does is regain greater control over the sources that are going to supply the country,” says Solorio.
A risky bet?
This reform leaves private companies in limbo, as it reduces the options they have to place the electricity they produce, that usually be cheaper than the one that comes out of the CFE plants, built decades ago.
“The way such a substantive change in the rules is being proposed, most likely it will bring a very large uncertainty in the sector“, says Francisco Ortiz, a researcher at the Universidad Panamericana.
“And what this is going to do is reduce the incentives for private investors to invest,” he adds.
For Israel Solorio, “it is positive that the State tries to regain the leadership of the energy sector”, but warns that “there are many criticisms to be made of the reform and how it is done, lacking a broad social discussion.”
“Sovereignty is not equal to energy security“, he warns.
“When López Obrador talks about energy sovereignty, he thinks about revitalizing the CFE, but there is no policy that guarantees the country’s energy security, and that is what we have faced with the blackouts in recent weeks,” he says in relation to the failures of the supply that Mexico had in February.
“An energy security needs a diversification in energy sources and that is something that is not currently in López Obrador’s policy,” adds the expert.
One of the problems that historically has had the mexican government has been the lack of capacity to invest in the electrical infrastructure from the country, explains Ortiz, so the contributions of the private sector are essential.
“The country is growing. And as a country that seeks development, electricity is essential. The government realized that it did not have resources for new technologies and infrastructures, so it had to turn to a third party, the private sector,” he says. .
In addition, as the AMLO government promised not to increase the price of electricity, any increase that occurs as a result of this reform must be compensated with subsidies, so that in the end it will be the consumers who end up paying those increases.
For 2021, the public budget of the Mexican federal government contemplates US $ 3,500 million to subsidize the cost of electricity.
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Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.