Mexico Weighs Limits to Private Investment in Electricity

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Critics say the move would mean dirty and more expensive energy; President López Obrador argues it will protect consumers

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But the move marks the latest effort by the government to roll back the historic 2013 opening of the country’s energy industry, which allowed for greater private investment in electricity and oil, formally lowering energy prices and Mexico. To improve the competitiveness of the government ended decades of monopoly. .

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But Mr. López Obrador’s government criticized the opening, arguing that the changes were in favor of private firms over state-owned companies such as the power utility CFE.

“We have to control energy prices so as not to affect the economy of the people, and that means strengthening state companies like CFE, because the previous policy was to strengthen private companies whose sole purpose is profit,” he said. .

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According to government estimates, the gradual opening up of the electricity industry in recent decades attracted tens of billions in new investment, with private firms now producing about 62% of the country’s electricity. But the new rules seek to guarantee CFE that produces at least 54% of the country’s electricity, the bill said, by voiding contracts that allow private companies to sell excess power to other firms using CFE transmission lines. gives.

The current law, from a 2013 overhaul, forces the national electricity grid to distribute the least expensive electricity first, a move that prioritized privately produced cheap electricity because most CFE plants were much older and more inefficient. . The new rules would give control of the grid to CFEs using their own energy regardless of cost. Analysts estimate that privately produced electricity is at least 30%-40% cheaper.

“First of all, being a participant in the CFE market leads to the market itself,” said Gonzalo Monroe, an energy consultant in Mexico City. He described the move as an attempt to “re-nationalise”.

Critics say that if the move is approved, electricity in Mexico would become more expensive, dirty and less reliable. The bill seeks to eliminate independent energy and oil regulators and add independent grid operators to the CFE.

“There’s a lot of ideology behind this,” said Alejandro Shtulman, director of Mexican political-risk consultancy Empra. “When you do something like this you’re limiting your chances of competition and growth and employment.”

The proposals would also give the government a monopoly on mining deposits of lithium, a key element in the fast-growing electric-car industry. The President said that a handful of existing lithium mining projects that are already under way from the private sector would be allowed to continue, but no new concessions would be allowed.

The bid to change the constitution comes after Mexican courts blocked what were considered unconstitutional earlier moves by the administration to rewrite the rules governing the electricity industry. A change in the constitution could open the door to international arbitration.

“Thousands of megawatts of gas-powered and renewable generation are mostly owned by foreign investors, who have invested under the thesis of a stronger regulatory environment where they will have access to transmission and specified dispatch regulations,” said Dan, a partner at New Bartfeld said. York office of international law firm Milbank.

“This will support clean and cheap electricity to the expensive and dirty generation, and it will hurt subsequent investments and investments already made, and will certainly increase international arbitration,” he said.

Analysts say even if the bill is not passed, fresh private investment in the power market is stalled amid uncertainty and the government’s action against private power companies.

Since taking power in 2018, the left-wing president has scrapped all new auctions for oil and gas drilling by the private sector. His government also scrapped renewable-energy auctions, and made legal and regulatory changes to restore the state’s companies’ share in the electricity and fuel markets.

Together these moves back Mexico’s efforts to attract private investment to lower energy prices and help its manufacturing-dependent economy gain more steam, analysts say. have to say. Since Mr López Obrador came to power, investment has fallen sharply, partly because of the pandemic and partly because the government’s policies have created uncertainty. Fixed investments fell 4.3% in 2019, Mr. López Obrador’s first full year in office, and 18% in 2020.

When this year a sharp rise in the prices of propane gas – used in most homes for cooking and heating water – caused inflation and strained household budgets, Mr. López Obrador founded a government gas-distribution company, To which he said it would offer fuel at a more reasonable cost.

Earlier this year, the government named state oil company Pemex as the operator of a large offshore oil reserve it shares with a consortium led by Houston-based Talos Energy. Inc.,

which has already invested heavily in the reservoir. Talos is appealing the decision with the Mexican government in an effort to avoid arbitration.

write to Anthony Harrup at [email protected] and David Luhnow at [email protected]

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