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News Article

CFE Embroiled in US$400 Million Legal Dispute with Goldman Sachs

By Cas Biekmann | Tue, 05/18/2021 - 16:07

Traders from Goldman Sachs Group are butting heads with Mexico’s state-owned utility CFE, backed by the country’s president Andres Manuel López Obrador. The issue is rooted in a payment for gas during February’s freak weather conditions, which caused a freeze in Texas and disrupted natural gas imports supply.

Mexico relies strongly on natural gas imports because the fossil fuel feeds the country’s main power plants. CFE was forced to deal with the harsh price hikes during the freeze, reaching almost 100 times the usual daily rate. As a result, Goldman Sachs argues it is owed roughly US$400 million from CFE, Bloomberg News reports.

CFE asserted in a WhatsApp group featuring various members of the Mexican press that it did not want to comment on the issue as it involved a legal dispute. Nonetheless, the state utility expressed it had “solid and sufficient arguments” in the matter: the traders who initiated the deal through CFEs’ subsidiary were not authorized to do so, for example. CFE also asserted that the bank was lacking financial sophistication during the trade. In addition, the state utility believes that the unexpectedly massive price hike means that it should not have to fulfill the contract, which furthermore did not get the explicit agreement of CFE’s main leadership. Since the deal was made through CFE International, the business arm that would normally handle such contracts, the deal looked rather routine. However, the problem occurred because the contract anchored Goldman Sach’s own obligations in a standard monthly index of gas prices. In Contrast, CFE was chained to daily rates, including the immensely inflated rates at the Waha hub in Texas.

López Obrador has made it one of his government’s central missions to rescue CFE, as well as national oil company PEMEX. In the past, the President has directed his attention to natural gas contracts, arguing that they benefit the private companies involved much more than they do CFE. Because Goldman Sach’s business in Mexico is steadily expanding, Bloomberg News suspects that the bank might not be willing to push this issue over the edge. On the other hand, CFE risks becoming a persona non grata in Wall Street by refusing to pay, which would severely complicate its possibilities to do business in the future.

The data used in this article was sourced from:  
Bloomberg News, El Financiero
Cas Biekmann Cas Biekmann Journalist and Industry Analyst