ASF Report Highlights CFE Challenges

The Federal Audit Office (ASF) published its Report on the Public Account’s Superior Fiscal Results for 2019 where it mentions that CFE’s subsidies, its uncompetitive tariffs, the ageing of its infrastructure and inefficient governance have caused the company to be unprofitable and incapable of generating economic value.

These deficiencies mean the company is not able to guarantee operations with efficiency, effectiveness, transparency and accountability, reported Forbes.

According to the ASF report, in 2019, CFE made its governance problem worse by not updating its business plan, which is essential to materialize the strategic vision and plans of the company. In addition, the audit; human resources and remuneration; strategic and investment and acquisitions, leases, construction and services committees failed to supervise and monitor specific procedures to guarantee the company’s competence.

CFE did not consider a priority the risks identified by ASF’s previous report from 2018, according to ASF, including 981 operational risks, 11 managing and 16 strategic threats.

Despite the company’s good level of liquidity, CFE also increased its debt and decreased its profitability. At the same time, the company showed poor performance on the risk tests that could have prevented its bankruptcy and because of this, the company cannot be considered financially stable, reported Forbes.

ASF’s analysis also concluded that no contracts were signed in detriment of CFE with private companies, as legacy contracts have the sole goal of diminishing basic supply costs.

The report also showed that CFE will pay US$6.8 billion more than was expected to Fermaca, Tc Energy, IEnova and Grupo Carso: private developers of five gas pipelines, according to S&P Global.

President López Obrador announced in August that its government had renegotiated those agreements and that Mexico would save US$4.5 billion over the next 25 years. Nevertheless, CFE extended four contracts by 10 years, which led to costs greater than the 25 years of savings.

ASF issued 21 performance recommendations that seek to perfect and strength the rules of operations, the company’s board and to update CFE’s business plan as a state producing company, which will prevent and control the company’s risks to drive value.

A suggestion was also made to the Senate to discuss, approve and promulgate an amendment to Art. 7 of the Federal Electricity Commission Act that would regulate the electricity industry and CFE to reduce and contain the growth of the company’s debt.