Mexico’s top court undoes president’s plans for state-owned energy company

It can also create a confrontation between the court and the president, a nationalist who seeks to reverse essential parts of a historic energy sector reform carried out under his predecessor, which ended Mexico’s state monopoly in the oil market and opened up the electricity markets. for the private sector investment.

Mexican courts are emerging as an obstacle to Lopez Obrador’s effort to centralize power, analysts say. A series of lower court decisions were against the government in the energy sector, and the Supreme Court prevented the government from reducing the salaries of senior officials at autonomous institutions like the central bank.

Wednesday’s decision by a 4-1 vote overturns key aspects of a policy published last year by the Ministry of Energy that required the national grid operator to receive electricity generated by CFE before cheaper options from private generators who have invested billions of dollars in the country, especially in wind and solar stations. The ministry argued that the change was necessary to ensure the reliability of the network.

The policy was challenged in the Supreme Court by the country’s antitrust commission, claiming it violated constitutional principles of free competition and access to markets.

“The feeling that this court decision leaves us is that, in one way or another, there is still a good system of checks and balances,” said Rodolfo Rueda, senior attorney at Thompson & Knight LLP with a focus on energy projects in America Latin.

The decision was made two days after López Obrador sent Congress a bill to change electricity laws that would further limit competition in the electricity sector in favor of the CFE, and would put billions of dollars of private investment at risk.

Analysts said the court’s decision makes it much more likely that the bill, if enacted in law, will also be overturned.

“The bill is much more aggressive against the rights of private investors than the reliability policy, so this is an unmistakable indication that the proposed reforms in the project would be unconstitutional,” said Pablo Zárate, managing director in Mexico at FTI Consulting,

a global consulting company.

Currently, the law requires that cheaper electricity be used first and more expensive energy last, with the idea that the savings can be passed on to consumers. The rules have favored private wind and solar generators over many of CFE’s oldest generating plants, which have higher costs.

According to the proposed changes, hydroelectricity would be the first energy placed on the grid, followed by any energy generated by CFE, electricity from independent energy producers under contract with CFE, then private solar and wind power and, finally, other power plants. private energy.

CFE, which has enjoyed a monopoly for many decades, has large hydroelectric plants, a nuclear power plant and plants that run on natural gas, coal and fuel oil, but little in the way of solar and wind energy.

The proposal also allows regulators to revoke licenses for private generators who built plants under a 1992 law that allows companies to generate electricity for their own use, and to require them to apply for licenses under current law.

Mexico’s largest business organization called the project “an indirect expropriation” and said it violated the constitution. He added that the law also goes against international trade, investment and environmental protection agreements.

The bill is supported by legislators from the ruling Morena party, which has a majority in the Chamber of Deputies and the Senate.

Last month, the US secretaries of state, energy and trade who left the US sent a letter to their Mexican colleagues saying that the López Obrador government could violate the United States-Mexico-Canada trade pact if regulators block authorizations to companies private companies in favor of the Mexican state energy companies.

“While we respect Mexico’s sovereign right to determine its own energy policies, we are obliged to insist that Mexico comply with its obligations under the USMCA,” they said.

—Santiago Pérez contributed to this article.

Write to Anthony Harrup at [email protected]