CFE Transmission Hints at Return of Private Investment Scheme

CFE’s transmission arm plans to develop many projects that aim to meet Mexico’s energy needs. Between 2020-2024 CFE aims to carry out 199 priority projects, 177 stemming from PRODESEN and 22 initiatives not mentioned in the development plan. US$1.2 billion of investment needed is to come from PIDIREGAS, a famous public-private investment structure used often in the past. For Mexico’s private energy sector, these arrangements can offer considerable opportunities.

64 of the projects already mentioned to CFE’s board amount to an investment of US$3.4 billion from CFE’s budget, with the further US$1.2 stemming from PIDIREGAS. To strengthen the National Electricity System (SEN), CFE will incorporate 38 of its own transmission projects as part of its 2021-2026 investment program. The goal is to guarantee that Mexico continues to have uninterrupted access to its energy, but many projects will be focused on increasing reliability toward the short term.

The resurrection of PIDIREGAS has been watched with interest by investors in Mexico. Initially used in the 90’s, when Mexico examined ways to attract more private investment. PIDIREGAS are investment programs featuring a deferred charge to public spending. By doing this, private investment can contribute capital toward public infrastructure works. Further down the line, the government pays back the capital invested, plus interest. In September 2019, CFE refinanced obligations stemming from earlier PIDIREGAS projects, displaying the options this scheme could bring for the state utility’s cash flow, long-term vision and investment generation. Head of CFE Manuel Bartlett praised the scheme that year, lauding how it allows CFE to move quickly on new developments. Arturo Herrera, Minister of Finance and Public Credit, also hinted at its benefits.

Nevertheless, the benefits of PIDIREGAS do not come without risk. The government practically takes on debt this way, which it will need to pay back entirely if the project does not yield sufficient returns on investment. Private companies take on little risk as long as they can rely on the government to pay them back in time.

Since the announcements of 2019, PIDIREGAS has since become a part of finance and development plans. Last year, the government released a series of infrastructure projects seeking to finance them with private capital, although these projects were to be paid back by the government as soon as they finalize construction. With the full scope of PIDIREGAS appearing to make its comeback in CFE Transmission’s planning, private companies can look to make use of this opportunity.

Industry experts already stressed the potential to collaborate between public and private spheres, despite the government’s restrictions to fully privately financed participation in the energy market in a bid to rescue the state-owned companies. “CFE will not be able to do everything on its own,” said Victor Luque, Partner at ATIK Capital, to MBN earlier this year.