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AMLO’s Assault on the Private Energy Sector Hurts the U.S.

Ataques de AMLO contra el sector eléctrico privado perjudican a USA y ponen en riesgo el T-MEC

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The upcoming discussion in the Mexican Legislature of the controversial electricity reforms has hardened the official message against private energy companies in the midst of a war of figures and accusations that stain the sector with uncertainty.

The President of Mexico, Andrés Manuel López Obrador, has taken advantage of the visibility of his daily conferences to accuse private power companies of “looting” the country and being corrupt, although he neither specifies these hypothetical cases nor provides evidence in this regard.

“The Federal Electricity Commission (CFE) guarantees that prices are not excessively increased, that what is happening in Spain or elsewhere does not happen to us, where the private ones are served with the big spoon,” he said.  

Without giving more details, on Monday he again accused the Spanish electricity company Iberdrola -the target of many of his attacks- of “lobbying” and monopoly in Mexico.

AMLO’s controversial reform

After several failed attempts to change the legislation, López Obrador is now promoting a constitutional reform initiative that seeks to limit private participation in electricity generation to 46% in order to favor the CFE, a state company accused of having some polluting and obsolete plants.

The Business Coordinating Council (CCE) affirms that the CFE, including the independent energy producers (PIE), controls about 70% of production, while the CFE lowers the figure to 62%.

The reform, which also proposes the nationalization of lithium, is part of the promise to strengthen the state-owned CFE and Petróleos Mexicanos (Pemex).

López Obrador will have a difficult time getting the approval because two-thirds of the chambers are required, and his party, the National Regeneration Movement (Morena), does not have a qualified majority, so he will need to agree with the opposition, and changes to the original proposal are not excluded.

“Today I would tell you that there is less than 20% probability that it will be approved,” Gonzalo Monroy, director of the GMEC consultancy, told EFE news agency.

Monroy sees it as difficult for the current opposition Institutional Revolutionary Party (PRI), the architect of the previous reform, to support the constitutional change.

Concerns in the electricity sector

Although Mexico’s Secretary of Energy, Rocio Nahle, has assured that “not a single screw” will be expropriated, analysts like Monroy fear that a certain “ambiguity” in the energy reform will be used so that the CFE will end up controlling private plants without even compensating them.

In this context, uncertainty is evident. 

“There are more than 150 future projects equivalent to more than 40 billion dollars of investment that are now at a standstill and that the country needs,” Carlos Salazar, president of the CCE, the employers’ organization, said recently.

In addition, the electricity industry -which so far has avoided confronting the President face to face- has already suffered from the non-renewal of some permits, such as that of an Iberdrola plant in Nuevo León, as well as the opening of administrative proceedings.

This case is not the only one that has occurred in recent months, although the Energy Regulatory Commission (CRE) declined to detail the exact number of non-renewals of contracts, alleging that they are “under legal process.”

The Spanish Commerce Chamber in Mexico (Camescom) recognized that the “current text” of the reform did not seem “good” to them, but they respected the legislative authorities while awaiting the final legislation.

Beyond the reform, there are already alarming precedents for the employers’ association. In mid-2020, for example, Iberdrola announced the suspension of a future combined cycle plant with an investment of 1.2 billion dollars due to a disagreement with the CFE on the supply of the necessary gas.

Finally, the state-owned company assured that it would take on the project.

“The electricity reform has already dried up private investments in clean energy. In the power sector, the private investment did not go to zero, but it dropped dramatically,” Carlos Elizondo, professor at the Tec de Monterrey School of Government, told EFE news agency.

Trade agreements with the United States at risk

The constitutional reform would also eliminate the autonomous energy regulators and would prioritize CFE fossil plants over private renewable ones, which could breach the renewed Treaty between Mexico, the United States and Canada (T-MEC), in force since 2020.

After visiting the country at the end of January, Jennifer Granholm, U.S. Secretary of Energy, warned of the “potential negative impact” of energy reforms on U.S. private investment. 

John Kerry, U.S. Special Presidential Envoy for Climate, last week also called for “strengthening the possibility of an open and competitive market” to boost renewable energy. 

“It is obvious that they are going to be respectful with sovereignty, but the U.S. government expects Mexico to respect the agreements signed between them with the free trade treaty,” said Monroy, who also remarked that many CFE plants are polluting.

All these attacks in an increasingly longer “mornings” come in the midst of the media revelation of the luxurious life of one of the President’s sons, José Ramón López Beltrán.

For this reason, most analysts agree that his rhetoric and electricity reform are nothing more than a smokescreen to hide much more serious problems such as the fact that the country grew a disappointing 4.8% in 2021 and it technically entered a recession in the second half of the year.

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