Mexico is poised to reshape local energy markets with a reform that prioritizes state control of the sector and reduces the role played by private companies.
President Claudia Sheinbaum on Wednesday submitted six bills to Congress that would allow for public-private electricity generation projects, but only when the state holds a majority stake.
Upon unveiling the proposal, Sheinbaum said the proposal would strengthen both the state-owned Federal Electricity Commission (CFE) and the state-owned petroleum corporation Pemex, making them more efficient and transparent.
The legislation establishes that at least 54% of all electricity supplied to the national grid must be provided by the CFE, according to the news agency Reuters.
The proposal is part of the enabling legislation to an energy reform passed by ruling party lawmakers last year.
In October, Sheinbaum and her ruling Morena party approved sweeping changes to the country’s electricity and hydrocarbons industries by reclassifying state-owned enterprises Pemex and CFE from productive to public companies. It also allows the two companies to operate as monopolies since they are seen by the new law as operating for the social good.
Permits and contracts already authorized under current law would remain valid until they expire.
According to the Oil Price Information Service (OPIS), market sources say the latest change reflects a partial reversal of the energy reform implemented in 2013 by then-President Enrique Peña Nieto, who touted it as fostering greater competition between private and state-owned energy companies.
Sheinbaum went further, calling the new legislation transcendent and historic.
“It is indeed a reversal of Peña Nieto’s 2013 reform, whose objective was to privatize,” she said. “In fact, it is also a reversal of the 1992 reforms so as to reclaim the public essence of the CFE and Pemex as guarantors of energy provision as well as defending national sovereignty.”
The proposal reflects the policies promoted by Sheinbaum’s predecessor Andrés Manuel López Obrador, who sought to restore state control over energy.
Sheinbaum, who took office on Oct. 1, has pledged continuity with López Obrador’s policy preferences and has argued that national sovereignty requires the CFE to serve as the power sector’s main driver.
Both López Obrador and Sheinbaum have insisted the CFE is better positioned to provide services to the population than profit-maximizing private companies.
The energy reform bill’s text enshrines the CFE’s role as system guarantor while ordering the power system to operate under conditions that ensure reliability, Reuters reported.
Some of the bill’s elements, however, appear to go beyond Lopez Obrador’s unconditional defense of oil and gas and his oft-stated skepticism of green power. Sheinbaum — a trained physicist who studied energy engineering and climate change — has frequently said she favors more renewable energy, although she’s been vague on specifics.
Reuters reported that the draft of the bill stipulates that the national power system promote decarbonization and the transition away from fossil fuels, a policy that differs from that promoted by López Obrador.
The bill also requires self-supply permit holders to sell any surplus power they generate to the CFE, Reuters reported.
Valeria Vázquez, lead energy and resources partner at the global consulting firm Deloitte, told the OPIS blog that it is unclear how private companies will participate in hydrocarbons.
“The law now establishes Pemex and CFE as the main operators in the market with specific rules for private participation [that are] different from what we have today,” Vázquez said.
The energy reform also imposes similar conditions on operations in Mexico’s states, which will be responsible for enacting implementing policies, according to Bernardo Cortés, a partner with the Cortés and Quesada law firm.
Cortés told the OPIS blog that the changes likely mean private companies will have fewer investment opportunities than when the 2013 reform was enacted.
Despite the skepticism, most sources said the energy reform should provide the benefit of establishing clear rules for operating in the market, according to the OPIS blog.
However, others argue that Mexico’s judicial reforms, along with the elimination of regulatory bodies that served to delineate the roles of the state, regulators, and state-owned companies in the market, have increased uncertainty for companies looking to invest in the country.
With reports from El Economista, Reuters and The OPIS blog
I am tired of the anti-judicial-reform propaganda. If you are going to print it at least articulate why it is criticized.
Please define these foreign (at least to Alta California) terms: “productive”and “public companies”.