CFE Faces 21 International Arbitration Lawsuits
CFE faces 21 lawsuits in international courts, leading to a significant increase in its budget for lawsuits and litigation for 2021. The company's financial statements disclose the commitments to these 21 arbitrations. However, there is no public information on the details of each lawsuit and it remains unclear whether these lawsuits are the result of the current administration or are legal processes that began in previous administrations.
Arbitration is the last resort of companies seeking resolution in a legal dispute, a process that follows the provisions established in USMCA and other trade agreements in which Mexico participates.
In 2020, CFE reported a reserve for lawsuits and litigation of MX9.84 million (US$492,490), by 2021, this budget increased to MX$9.63 billion (US$482.4 million). These resources are typically used to cover the costs resulting from legal proceedings in which CFE participate and to pay plaintiffs, in case the ruling is against the utility. When sizing the budget with other CFE commitments, it stands out that the budget for litigation is higher than the state-owned company's budget to operate, maintain and expand the national transmission grid in 2021, equivalent to MX$7.34 billion (US$367.5 million).
Most of the conflicts have derived from the winter storm in Texas in February last year, which significantly increased the price of natural gas purchased by the state-owned company.
The only process CFE has given information about is the arbitration started in April 2021 by Aron & Company LLC, a trading company owned by Goldman Sachs. The process relates to payment obligations under natural gas purchasing contracts during the Texas winter storm in February 2021, which generated price spikes. Because of this, Goldman Sachs commenced arbitration in May in which it is claiming a US$400 million payment for an alleged debt arising from a natural gas transaction during the aforementioned gas supply crisis.
Another case involves Iberdrola, which after being unable to start the operation of Topolobampo III, a power plant tendered in 2017 to sell electricity to CFE, is claiming the entry into operation of the plant along with a US$10 million payment and a US$2 million compensation for what the company paid in penalties.
Like CFE, PEMEX is also facing international arbitration. In the case of the NOC, Finley Resources, MWS Management and Price Permanent demanded the payment of US$150 million as compensation for a breach of contract for drilling services in Veracruz signed 10 years ago when the three US companies won a bidding process. The claim was filed on May 12 before the International Centre for Settlement of Investment Disputes (ICSID) under USMCA.