AMLO Seeks More Market for Mexico’s Utility with New Reform

(Bloomberg) -- Mexican President Andres Manuel Lopez Obrador is trying to amend the constitution to give the state utility more power and reduce competition, marking a major blow to the nascent private energy sector.

The bill would cancel most permits awarded to private companies for electricity generation, in efforts to ensure the state-owned power utility Comision Federal de Electricidad holds onto 54% of the market. It would also have independent energy regulators be absorbed into government agencies. 

“We have to have control of energy prices so that people’s finances aren’t affected and this means strengthening public companies,” Lopez Obrador said at his daily press briefing on Friday. “The previous policy was to strengthen private companies which had the goal of profit, especially foreign companies -- which were taking possession of the whole market.”

The changes would dial back Mexico’s historic 2013-2014 energy overhaul that opened the market to competition and ended more than 75 years of oil nationalism in the country. Since taking power in late 2018, the president has vowed to undo the reforms of his predecessor and prioritize the country’s embattled state-run companies Petroleos Mexicanos and CFE, as the state utility is known.

Self-Supply Contracts

The president’s bill eliminates self-supply contracts, among other permits, that allow companies to generate electricity for the grid. It also prohibits new contracts to explore or produce lithium, giving the government control over lithium extraction.

The National Hydrocarbons Commission and the Energy Regulatory Commission, which regulate the energy market, would be incorporated into the energy ministry. And the Cenace, which was created by AMLO’s predecessor to manage the wholesale electricity market, would be absorbed by the CFE.

“The instrumentation of the electricity system proposed in this bill requires the cancellation of all permits granted for electricity generation,” the bill says.

Two-Thirds Majority

The bill faces several obstacles, however. The president’s Morena party and its allies have a majority in both houses, but they would need to gather support from outside the coalition to gain two-thirds of the vote in order to pass a constitutional amendment. If it passes the lower house, where it was presented late Thursday, it would be taken up by the senate, and would need approval by a majority of state legislatures to go into effect.

Approval of the bill could also lead to both domestic lawsuits and international arbitration under the USMCA trade deal with the U.S. and Canada, said Rodolfo Rueda, lead partner of the regulatory and government relations practice at law firm Holland & Knight LLP in Mexico City. 

“There could be major impacts for the country from the cancellation of electricity contracts and eliminating the regulators,” he said in a telephone interview.

Mexico’s AMLO Reiterates He’ll Present Power Reform This Month

AMLO, as the president is known, passed a similar bill into law without changing the constitution earlier this year but it has faced several court battles since its approval in March, and some injunctions filed by private companies remain in effect. It has also come under criticism from the competition watchdog Cofece, which said that the measures were anti-competitive.

“Under neoliberalism they started a policy of pillage, of plunder, and foreigners came and thought Mexico was a land of conquest and they plundered us like in the colonial era,” Lopez Obrador said. “All that has now ended, and we are seeking to heal the damage that was caused by the so-called energy reform.” 

(Updates with expert comment in ninth and 10th paragraph.)

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