President López Obrador’s proposed electricity reform “makes no sense” and if passed will take Mexico, and North American integration, backward, according to an opinion piece published by The Wall Street Journal.
Written by columnist and WSJ editorial board member Mary Anastasia O’Grady and published under the headline “Mexico moves to seize American assets,” the piece notes that Mexican authorities recently shut down three U.S.-owned fuel storage terminals in Mexico.
Unnamed energy sector sources cited by the newspaper Reforma claimed that the federal government was seeking to link private companies to the distribution and sale of illegal fuel.
O’Grady wrote that Monterra Energy – whose terminal in Tuxpan, Veracruz, was closed on Energy Regulatory Commission (CRE) orders last month – told her it has complied with all regulations but the CRE isn’t answering its calls. The terminal, which imports gasoline from U.S. Gulf Coast refineries and supplies privately owned gas stations in Mexico, remains closed.
“There’s trouble brewing between Mexico and the U.S., and I’m not talking about immigration,” O’Grady wrote.
“President Andrés Manuel López Obrador’s desire to put the state in full control of the energy industry, as it was in the 1970s, is running head-first into treaty obligations on trade and investment. The arbitrary closing of private gasoline-storage facilities is a fraction of the problem,” she said before condemning the president’s electricity sector agenda.
O’Grady said that a constitutional bill López Obrador (AMLO) sent to Congress this month – which seeks to guarantee 54% electricity market participation for the state-owned Federal Electricity Commission (CFE) and get rid of two independent regulators, the CRE and the National Hydrocarbons Commission – is labeled “electricity reform.”
“Yet while ‘reform’ normally suggests improvement, this legislation, if passed, will take Mexico, and North American integration, backward,” she wrote.
The columnist noted that AMLO’s bill – which will require opposition support to become law – seeks to modify three articles of the constitution, including Article 27, which would be amended to establish “that the strategic area of electricity belongs exclusively” to the state and consists “of generating, conducting, transforming, distributing and supplying electrical energy.”
O’Grady acknowledged that private companies would still be able to operate in the Mexican electricity market, “but they would have to sell to … [the] CFE, which would set prices as a monopsony and would run a monopoly in selling to users.”
“The CFE would be in charge of dispatching supply and guaranteed a minimum 54% of the market. This is a big change. Since Mexico opened its energy markets to private investment in 2014, electricity generators selling power into the grid have enjoyed dispatch of supply according to price, with more cost-efficient plants, like those using renewables, natural gas and modern technology, going first,” she wrote.
“Large consumers, including manufacturers, have been allowed to contract directly with private suppliers, which rent transmission lines at prices set by an independent regulator.”
O’Grady charged that a “state takeover of the entire electricity market and the end of an independent regulator makes no sense in a developing country that needs competition to ensure plentiful and cheap electricity for manufacturing.”
“But AMLO’s new law isn’t about enhancing electric power. It’s about consolidating state power – via its companies, the CFE and Petróleos Mexicanos (Pemex),” she added.
By giving the CFE “constitutionally mandated control” over the supply and pricing of electricity, “Mexico would dangerously centralize political and economic power in the state-owned company,” O’Grady asserted.
“There’s an estimated $45 billion in private capital – foreign and domestic – in Mexico that will be affected by this new law. Notably, it will cancel all permits and long-term power-purchase agreements with the CFE – which were necessary to secure financing,” she wrote.
The editorial board member also charged that AMLO’s initiative would destroy Mexico’s nascent wind and solar industry.
“But he’s focused on helping Pemex unload its high-sulfur fuel oil, which is difficult to convert into revenue in the market,” O’Grady wrote. “Greater use of CFE fuel-oil-powered plants implies rising pollution and emissions when cheaper and cleaner options are readily available.”
The columnist asserted that the constitutional bill also violates the new North American free trade agreement, the USMCA, “as it abrogates contracts, capriciously strips investors of value, eliminates market-based competition, discriminates against private capital, cancels access to activities not reserved as exclusive in the agreement, and eliminates independent regulators, including in hydrocarbons.”
“… In a July 22 press conference, Mr. López Obrador pooh-poohed concerns that the U.S. might object to his crackdown on competition, insisting that Washington hasn’t complained. If Mexico’s Congress reads that as implicit U.S. approval of the bill, it will be a tragedy not only for investors but for all Mexicans,” O’Grady concluded.
It’s not the first time that the columnist, who writes weekly on politics, economics and business in Latin America and Canada, has gone on the offensive against AMLO.
In a 2020 piece entitled “Mexico slides toward one-man rule,” she accused the president of “working to consolidate as much power as possible” in the executive branch of government. AMLO dismissed the claim, charging that The Wall Street Journal lacked professionalism and didn’t know the history of the country.
With reports from The Wall Street Journal