CITY OF MEXICO – President Andrés Manuel López Obrador has never criticized his legacy for his predecessor. But he reserved a special contempt for the comprehensive overhaul that Mexico’s strict energy industry has opened up to the private sector.
He called the changes a form of legitimate ‘looting’, the product of corruption and a resounding failure. He suggested that some foreign energy investors ‘plunder’ the country and that Mexican lawyers working for them were guilty of treason.
He is now formalizing his most aggressive attack yet on the measures.
In the next few days, a bill that would strengthen the dominance of Mexico’s state-owned electricity company is expected to become law. The measure, recently approved by the Congress of Mexico with the strong support of Mr. López Obrador, would also limit the participation of private investors in the energy sector. Both effects are central to its long-standing goal of restoring energy self-sufficiency and protecting Mexican sovereignty.
Mexico’s dependence on foreign hydrocarbons was highlighted last month when a winter storm in Texas led to an interruption in the supply of natural gas from the United States, the source of most natural gas used in Mexico. Mr. López Obrador cited the subsequent disappearance as proof of the dependence on foreign energy.
The legislation, passed by the party of Mr. López Obrador was quickly followed by the Congress of Mexico, facing almost universal criticism from opposition lawmakers, environmentalists, industry analysts, Mexican and international business groups, and even Mexico’s monopolistic watchdog.
Many critics see the bill as a political opportunity to revive the president’s base ahead of the midterm elections in June. López Obrador hopes to turn his party’s congressional majority into the super-majority needed to change the Constitution.
Opponents of the legislation say it would not only succeed in reviving the energy sector or in achieving energy independence, but that it would also violate Mexico’s international commitments to reduce carbon emissions with trade agreements and foreign investment in Mexico. will cool, just as the nation struggles to regain economic momentum amid the pandemic.
The legislation also threatens another wrench in the relationship between the administrations of Mr. To overthrow López Obrador and President Biden, who made a stormy start when the Mexican president became one of the last world leaders to oust Mr. Biden congratulations on his election victory. .
“I think the impact of this reform is a major reversal,” said Lourdes Melgar, who was a top official in the government of his predecessor. López Obrador, Enrique Peña Nieto. According to her, the Mexican president had a very nationalist view of how to use resources. ‘
She added: “He wants to bring private producers to their knees, and we see it in the most absurd ways.”
Jeremy M. Martin, vice president of energy and sustainability at the Institute of the Americas, a think tank for public policy in San Diego, said the legislation is likely to resonate with supporters of Mr. López Obrador, who makes them feel like they are finally a president who puts Mexican people first.
“It makes no economic sense, but it makes a lot of sense to people who feel like they’ve been screwed in Mexico for years,” he said. “It’s pure ideology, it’s political.”
The legislation will rewrite the rules for the electricity sector. Among other changes, it would change the so-called transmission rules that determine the order in which plants carry their power in the country’s net, thus giving greater priority to plants operated by the state-owned electric company, the Federal Electricity Commission.
The liberalization of the energy market approved by the Mexican legislature in 2014 put forward low-cost power generation, which increasingly benefited solar and wind power plants, which inspired a boom in private investment – from Mexico and abroad – in the renewable sector .
But the new legislation restores preferences for state-owned, fossil-fuel-powered plants that generate power at higher costs and deliver greater carbon emissions.
Mr. López Obrador and his allies argued that the bill seeks to correct a bias in the 2014 refurbishment that they believe offers unfair market advantages to private companies.
“We are leveling the playing field, we are setting clear rules, we are prioritizing national security,” said Rocío Abreu Artiñano, a senator with the ruling Morena party and president of the Senate Energy Commission.
The current scheme, according to her, ‘suffocates’ the Federal Electricity Commission.
When more than 4.5 million homes and businesses in northern Mexico lost power last month after northern weather froze cross-border pipelines and the Texas governor issued an order restricting natural gas exports, Mr. López Obrador said this is a lesson in the need for energy independence.
Gas-fired plants generate more than half of Mexico’s power; according to the Mexican government, the vast majority of natural gas is imported, most of which comes from the United States.
“We must always be self-sufficient, producing in Mexico what we consume: food, energy,” he said. López Obrador said mid-February when Mexico recovered from the blackouts.
But analysts and industry leaders say the new legislation, despite the insistence of Mr. López Obrador that it will move Mexico to greater energy independence, making the country more dependent on foreign energy sources by increasing the dependence on fossil fuels it has to import.
Although household energy bills are likely to remain isolated against price increases through government subsidies, industrial users may experience an increase in electricity costs that they are likely to pass on to their customers, analysts say.
“It has no economic logic,” said Víctor Ramírez Cabrera, spokesman for the Mexico Climate and Energy Platform, a research group in Mexico City. He calls the new model for power sources ‘absurd’.
Environmentalists and other critics have also hailed the legislation, saying it would reverse the hardship gains in reducing carbon emissions and put Mexico on a course that goes against global efforts to address climate change, in violation of its international agreements. and possibly its own laws. .
Mr López Obrador said the government planned to upgrade its hydroelectric plants, which are given greater priority under the new energy procurement scheme, to meet its climate commitments. But critics of the legislation are deeply skeptical.
“There is no way to comply with the Paris Agreement under these conditions,” he said. Ramírez said. “Just give it up for death.”
Critics say the legislation is just as worrying about foreign direct investment in Mexico. The law will in fact hamper many businesses that have invested in privately owned renewable energy since the opening up of the energy sector and their chances of making a profit have been paralyzed.
“It’s going to hit them big and heavy,” said Gonzalo Monroy, an energy consultant in Mexico City.
Investors “have come to invest in the country and rely on the rules, in the law,” said Xóchitl Gálvez Ruiz, a senator with the opposition National Action Party. “Overnight they are told, ‘You know what? I do not like it, I’m going to change the rules. ”
Analysts and industry experts say lawsuits against the law are inevitable, including possible challenges that could violate clauses in the United States-Mexico-Canada agreement, which replaces the North American Free Trade Agreement.
The legislation is just the latest which, according to analysts, is a series of protests with foreign investments by Mr. Lopez Obrador, including the cancellation of a $ 13 billion airport project in 2018 and the blockade of a partially built brewery in northern Mexico last year.
Following Senate approval of the new law last week, the peso fell to a four-month low against the dollar. And a Reuters poll suggested the currency could be volatile throughout, in part due to concerns about the energy recovery.
“Investment levels are falling and nobody wants to invest here,” said Israel Tello, a legal analyst at Integralia, a consulting group in Mexico. “Legal uncertainty is the deadliest weapon against investment.”