CFE Must Pay US$85 million to ATCO Over Arbitration Case

In 2021, CFE lost an international arbitration case against the Canadian company ATCO. According to Reuters, the state utility had to pay a compensation of around US$85 million. ATCO pursued arbitration after CFE canceled a contract the Canadian firm had signed with the previous administration to build a natural gas pipeline near the city of Tula, Hidalgo. 

At that point, ATCO had already built most of the 17km pipeline intended to supply a power plant, but could not finish the final stretch due to resistance by local communities and subsequently invoked force majeure. The firm argued that the Mexican authorities had not done enough to enable the pipeline's completion, and the court concurred. 

The London Court of International Arbitration ruled on the issue involving the Ramal Tula pipeline to ATCO in October 2021. The sum came to around US$100 million following the addition of both legal fees and interest, which CFE paid in December 2021. When the project was awarded back in 2014, it was estimated to be worth US$66 million.

Though the construction of the pipeline was contracted by the previous government, this ruling suggests a legal avenue for the kind of compensation that Mexico might have to pay because of the disputes that the government is currently involved in as a result of controversial measures taken by President Lopéz Obrador, in an intent to strengthen the state’s control over the energy market.

Since the beginning of his administration, President Lopez Obrador has prioritized the position of CFE and PEMEX at the expense of private companies, arguing that previous governments had favored private capital over federal institutions.

CFE said in its 2021 annual report that it was facing 21 international arbitration cases, and had significantly raised its reserves for litigation and lawsuits. Moreover, in July, the US government requested to open consultations with Mexico under the USMCA Dispute Settlement Chapter, arguing that several energy policies imposed by President Lopez Obrador had violated the agreement. Not long after, Canada joined the US complaint. Since the disagreement remained unresolved after the stipulated 75 days, recent developments between the parties involved suggest that the consultation period will be extended. However, Mexico is still walking the tightrope on the matter, as some experts fear the country might not be doing enough to avoid further lawsuits.

Nonetheless, there have been signs that Mexico is finding ways to overcome some disputes. In August, Canadian company TC Energy said it had closed an agreement with the CFE to build a US$4.5 billion pipeline in the southeast of the country. In the announcement, TC Energy explained the two parties had agreed to mutually terminate international arbitration related to other pipelines that the Canadian company was building in Mexico.