MEXICO CITY – President Andrés Manuel López Obrador has never failed to criticize the legacy of his predecessor. But he reserved special disdain for the broad review that opened Mexico’s tightly controlled energy sector to the private sector.
He called the changes a form of legal “looting”, the product of corruption and a resounding failure. He suggested that some foreign energy investors are “plundering” the country and that the Mexican lawyers who work for them are guilty of treason.
He is now formalizing his most aggressive attack on measures.
In the coming days, a bill that would strengthen the dominance of Mexico’s state-owned electricity company is expected to become law. The measure, which was recently approved by the Mexican Congress with the vigorous support of 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 safeguarding Mexican sovereignty.
Mexico’s dependence on foreign hydrocarbons was highlighted last month, when a winter storm in Texas led to interruptions in natural gas deliveries from the United States, the source of most of the natural gas used in Mexico. López Obrador pointed to the blackouts that followed as evidence of the need to reduce dependence on foreign energy.
However, the legislation, which was passed by the Mexican Congress by López Obrador’s party, has met with almost universal criticism from opposition lawmakers, environmentalists, industry analysts, Mexican and international business groups and even Mexico’s antitrust body.
Many critics see the project as a political move to enliven the president’s base ahead of the midterm elections in June, through which López Obrador hopes to transform his party’s parliamentary majority into the supermajority needed to make changes to the constitution.
Opponents of the legislation say it would not only fail to revive the energy sector or help achieve energy independence, but would also violate Mexico’s international commitments to reduce carbon emissions, conflict with trade agreements and further cool the foreign investment in Mexico. nation is struggling to regain economic momentum amid the pandemic.
The legislation also threatens to pull another key in the relationship between the López Obrador governments and President Biden, which got off to a rough start when the Mexican president became one of the last world leaders to congratulate Biden on his election victory. .
“I think the impact of this reform is a major reversal,” said Lourdes Melgar, who was one of the main energy authorities in the government of López Obrador’s predecessor, Enrique Peña Nieto. The Mexican president, she said, “has a very nationalistic view of how to use the resources.”
She added: “He wants to put private producers on their knees, and we are seeing this in the most absurd ways.”
Jeremy M. Martin, vice president of energy and sustainability at the Institute of the Americas, a center for public policy studies in San Diego, said the legislation likely resonates with López Obrador’s supporters, who felt they finally have a president who is putting the Mexican people first.
“It doesn’t make any economic sense, but it makes a lot of sense to people who feel like they’ve been screwed for years in Mexico,” he said. “It is pure ideology, it is political”.
The legislation would rewrite the rules that govern the electricity sector. Among other changes, it would change the so-called dispatch rules that govern the order in which the plants inject energy into the country’s electricity grid, giving higher priority to the plants managed by the state-owned electric company, the Federal Electricity Commission.
The liberalization of the energy market approved in 2014 by the Mexican legislature gave priority to the generation of low-cost energy, which increasingly favored plants generated by solar and wind energy, inspiring a wave of private investment – from Mexico and abroad – in renewable sector.
But the new legislation effectively restores preferences for state plants powered by fossil fuels that generate energy at higher costs and produce higher carbon emissions.
López Obrador and his allies argued that the project aims to correct a bias in the 2014 reform that, according to them, gave unfair market advantages to private companies.
“We are leveling the ground, establishing clear rules, prioritizing national security,” said Rocío Abreu Artiñano, senator of the governing party Morena and chairman of the Mexican Senate energy commission.
The current scheme, she said, is “suffocating” the Federal Electricity Commission.
When more than 4.5 million homes and businesses in northern Mexico lost power last month after the arctic climate froze transboundary gas pipelines and the Texas governor issued an order to restrict natural gas exports, López Obrador said it was a lesson on the need for energy independence.
Gas-fired power plants generate more than half of Mexico’s energy; the vast majority of natural gas is imported, most of it coming from the United States, according to the Mexican government.
“We must always seek self-sufficiency, produce in Mexico what we consume: food, energy,” said López Obrador in mid-February, while Mexico was recovering from blackouts.
But analysts and industry leaders say the new legislation, despite López Obrador’s insistence that it will lead Mexico to greater energy independence, may actually make the nation more dependent on foreign sources of energy, increasing the dependence on fossil fuels that need to import.
While household electricity bills are likely to remain isolated from price increases by government subsidies, industrial users may experience an increase in electricity costs that they would likely transfer to their customers, analysts said.
“This has no economic logic,” said Víctor Ramírez Cabrera, spokesman for Plataforma México, Clima e Energia, a research group in Mexico City. He called the new model of power supply “absurd”.
Environmentalists and other critics have also attacked the legislation, saying it will reverse hard-won gains in reducing carbon emissions and put Mexico on a course that runs counter to global efforts to tackle climate change, violating its international agreements and possibly its own laws.
Mr. López Obrador said that the government plans to modernize its hydroelectric plants, which are given higher priority in the new energy supply scheme, to help 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,” said Ramírez. “Just give up to die.”
Equally worrying, critics say, is the negative impact that legislation can have on foreign direct investment in Mexico. The law would basically hurt many private renewable energy companies that have invested since the opening of the energy sector and undermine their chances of profit.
“This is going to affect them broadly and strongly,” said Gonzalo Monroy, an energy consultant in Mexico City.
Investors “began to invest in the country, trusting the rules, the law,” said Xóchitl Gálvez Ruiz, a senator for the opposition National Action Party. “Overnight, they hear, ‘You know what? I don’t like it, I’m going to change the rules. ‘”
Analysts and industry experts say that litigation against the law is unavoidable, including possible challenges based on the fact that it may violate provisions of the United States-Mexico-Canada Agreement, which replaced the North American Free Trade Agreement.
The legislation is just the latest in what analysts say is a series of affronts to foreign investment by Lopez Obrador, including the cancellation of a $ 13 billion airport project in 2018 and the blocking of a partially built brewery in northern Mexico. last year.
After the Senate passed the new law last week, the peso fell to a four-month low against the dollar. And a Reuters poll suggested that the currency could spend a few erratic months, in part due to concerns about the energy sector overhaul.
“Investment levels are falling and no one wants to invest here,” said Israel Tello, legal analyst at Integralia, a consultancy group based in Mexico City. “Legal uncertainty is the most lethal weapon against investment.”