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New electricity market regulations violate rule of law: private sector

Business groups warn of negative impact on foreign investment

Several business groups have called for the immediate revocation of the federal government’s new energy policy, charging that it violates the rule of law and will scare off investors.

The Ministry of Energy (Sener) published a new energy policy in the government’s official gazette late on Friday that imposes restrictive measures for the renewable energy sector that could effectively prevent its expansion in Mexico and consolidate control of electrical power in the government’s Federal Electricity Commission (CFE)

The new regulations give priority to using electricity from CFE plants whereas until now priority was given to the plants with the lowest production costs. Renewable energy’s costs run at about US $20 per megawatt hour while those of the CFE are as much as $141.

According to the Business Coordinating Council (CCE) – an umbrella organization representing 12 business groups – the American Chamber of Commerce of Mexico and the Executive Council of Global Companies, the new policy “tramples on the rights of all the participants in the national electricity sector.”

“It doesn’t just discriminate against renewable energy, it also allows the authorities to artificially raise the price of electricity generation in the country and arbitrarily oust any private sector generation project,” the business groups said in a joint statement.

“This policy violates the rule of law and places legality, legal certainty and free economic competition in the energy sector at risk,” the statement said.

“It’s a flagrant violation of the constitutional and legal framework in Mexico. Through this instrument, Sener usurps powers to illegitimately influence the rules of the sector and competition conditions.”

The business groups said that the policy was published without respecting legal processes and charged that it represents “a head-on attack on legal certainty for investments in Mexico.”

The new policy will have serious consequences on the Mexican economy, the groups said, asserting that it will cause a loss of both jobs and investor confidence. Energy projects located in at least 18 states and worth a combined US $30 billion will be adversely affected, they said.

The business groups called on the Interior Ministry and the legal department of the president’s office to investigate the “irregular circumstances” in which the policy was published and immediately revoke it.

“The private sector – including generators, vendors and consumers of energy – will exhaust all legal recourse that the Mexican constitution and the trade agreements and international instruments that are in force offer in order to protect the integrity of the rule of law in Mexico and defend the Mexican energy sector as an engine of development in the country,” the statement concluded.

Gustavo Hoyos, president of the Mexican Employers Federation, charged that the new policy is contrary to Mexico’s obligations under trade agreements with the European Union and the new North American pact, the USMCA while the Confederation of Industrial Chambers (Concamin) said it will have a negative impact on Mexico’s international reputation as a destination for investment.

The European Union and Canada – where many of the foreign investors in Mexico’s renewable energy sector are based – have already written to Energy Minister Rocío Nahle to express their opposition to measures announced by the National Energy Control Center before Friday’s policy publication which also prioritize electricity generation by the CFE over that of private companies.

Echoing Concamin’s sentiment, the CEO of the strategic communication firm Guerra Castellano y Asociados said that the new policy will harm Mexico’s international reputation.

“It positions us as a country that is betting on the past and which doesn’t respect deals that have already been agreed,” Gabriel Guerra said.

However, the domestic political cost will not be significant, he claimed, charging that López Obrador will only lose the support of a small cohort of university students, scientists, academics and climate activists who were already “disenchanted” with the president.

For his part, López Obrador remains uncompromising, telling reporters at his morning news conference on Monday that his administration will continue to stick up for the CFE over private companies that were awarded “one-sided contracts” before he took power.

The business groups that threatened legal action against the new energy policy should instead be apologizing in recognition that their member companies unfairly took advantage of the Mexican state in the past, he said.

Preferential treatment was given to private companies generating renewable energy over the CFE even though it too was producing clean energy, the president charged.

“In the national energy system, energy had to be bought first from private companies and Federal Electricity Commission plants had to be stopped,” López Obrador said.

He added that private companies are also angry because his administration is cracking down on tax evasion.

“[We’re] putting things in order and we’re going to continue doing it. … They’re very angry because they didn’t pay taxes and they’re filing complaints. I’m talking about large national and foreign corporations that had great influence, even within the [political] parties.”

Source: Reforma (sp), El Economista (sp), El Universal (sp) 

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