News Article

Being Clear About the Path Forward

By Pedro Alcalá | Thu, 03/11/2021 - 19:06

You can watch the video of this presentation here.

Mexico Energy Forum’s last presentation on Thursday, Mar. 11, was delivered by Congressman Enrique Ochoa Reza, Deputy for Michoacan and Secretary of the Energy Commission in the Chamber of Deputies. His presentation, titled “Back to the Future,” was meant to reference the need for Mexico’s energy sector to return to a previous state of development and future opportunities which he argued were being hampered by the most recent legislative actions and controversies surrounding the sector. Ochoa began his closing remarks by mentioning the latest industry development of today: a judge has ordered a temporary suspension in general terms to the recently passed energy bill, which Ochoa Reza saw as an opportunity to rethink the priorities of this initiative and how they can be translated into a more cohesive understanding of the sector’s future. 

 Ochoa explained that the founding element of these new laws was that CFE needed to be strengthened, which was based on the erroneous misconception that CFE was suffering as badly as the “other productive enterprise of the state” (PEMEX). Ochoa’s figures showed instead that, while PEMEX has been closing its annual balance sheets with losses since 2016, CFE has actually stayed in black during those same years, only experiencing losses in 2020. He also mentioned that, while PEMEX’s credit ratings have been lowered below investment grade, CFE remains above investment grade, according to the three major credit rating agencies. According to Ochoa, one of the things that made CFE strong is that it operated in an open and competitive market with clear rules. “One of the elements that strengthened CFE and its energy supply is fair competition in the market. If this is removed, it could have negative impacts on the electricity system. Mexico will only provide benefits to its electricity consumers if there is openness and fair competition; this is the future we need.” 

Ochoa said that despite the law being rushed, it still cannot evade revision should it be deemed unconstitutional. Ochoa said the new law’s unconstitutional nature had been either intentionally or unintentionally ignored by legislators who pushed it through both chambers regardless. Mexico’s energy sector has to learn from the three most recent models it has embraced so far, he said: the model that was present from 1992 to 2013, the model that was implemented in 2014 after the Energy Reform and the model that legislators are attempting to implement now. “These three visions are coexisting: they have each generated distinct international commitments backed up by international treaties. They must coexist. When we talk about reforms, people always wonder what will happen to the contracts that were agreed before. Mexico has a non-retroactive principle that says that we must respect those contracts,” he said.

Ochoa preferred not to speculate as to what the future could hold after the upcoming midterm elections. “Politics have taught me to be a historian and not a prophet when it comes to electoral matters.” However, he did make it clear that some of the proposals that he had heard so far to strengthen CFE in a way that also promoted renewable energy confused him. “For example, the revamping of hydroelectric plants is a lot more complicated than these plans would suggest. Hydroelectric plants exist through complicated and volatile agreements with surrounding communities, whose access to vital water resources have a direct connection to the plant’s operation.” Ocha Reza concluded his presentation highlighting that the sector must maintain its future ambitions in the face of all of these challenges. “Moving into the future means generating more reliable and economical electricity, taking care of the environment and favoring public health. CFE will be the most important company in Mexico and does not need laws to achieve this but in order to promote the best international practices and technologies, dialog will be the key to its success,” Ochoa said.

Pedro Alcalá Pedro Alcalá Senior Journalist & Industry Analyst