Tuesday, April 23, 2024

Mexican electricity reform set to increase trade tensions with the United States

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Mexico has proposed a major overhaul of its electricity market to favor its public utility, to a degree that would deal a blow to the country’s use of renewables and increase trade tensions with the United States. and Canada.

A fast-track bill introduced in Congress would change the order in which electricity is delivered to the national grid, sending private investors back to the back of the queue behind electricity from CFE, the utility.

Renewable energy producers, currently sent first because they are the cheapest, would lose this prominent place.

The bill – the most daring overhaul in months of attempted rule changes in the industry – is expected to pass in Congress, where the Mexican government has a majority in both houses. He said he was seeking to end the “years of layoffs” by the private sector.

“It’s open war,” said Carlos Ramírez at Integralia, a consulting firm, which saw the decision as a step forward for the president. Andrés Manuel López Obrador desire to overturn a landmark 2013 law deregulating the energy industry. “It’s a sign that the government is getting more radical.”

A former energy sector official said some $ 41 billion in private sector investment in power generation could be at risk and experts predict that would trigger lawsuits, including under the USMCA Free Trade Treaty with the United States and Canada.

Pablo Zárate, managing director of FTI Consulting, said that “although this bill does not mention expropriation or nationalization, it seems to be the kind of action that could be considered to have expropriating effects”.

Only last month United States warned Mexico that private investment under the USMCA as well as “hundreds of millions of dollars” in development aid cooperation were threatened by attempts to favor state-owned energy companies. “We are compelled to insist that Mexico meets its obligations at USMCA,” wrote the United States in a letter signed by former Secretary of State Mike Pompeo and his energy counterparts and Trade.

Among other provisions, the new bill would abandon the use of long-term auctions for electricity purchases, qualifying these auctions as “a perverse scheme imagined for the sole purpose of guaranteeing the profitability of the investments of private producers to the detriment of the CFE. “. The bill also aimed to do away with so-called self-supply contracts, which allow companies to generate electricity for their own use.

Ramses Pech, an energy consultant, said the scrapping auction “left the door open to corruption, as it would be up to CFE to decide who they hired.” Shipping energy from high-cost CFE plants to the grid first would increase costs, he said.

The new bill also contains provisions to allow CFE’s aging hydroelectric plants to obtain clean energy certificates, a move that the industry says discourages investment in green energy.

Jeremy Martin, vice president of energy at the Institute of the Americas, said the bill was clear climate commitments were “irrelevant”.

Mr. López Obrador, at champion of fossil fuels, said Mexico’s energy laws had left CFE “in shambles”, making moves to prioritize CFE a strategic imperative. CFE recorded a loss of $ 3 billion in the first nine months of 2020, slipping into the red from the same period in 2019. It has struggled with aging infrastructure and high pension costs.

Although self-supply contracts have been in effect since 1992, the bill says MexicoThe energy reform of 2013 allowed supply to third parties, constituting “a fraud against the law”.

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