Construction Companies in the Energy Sector Face Uncertain Times

The 2022 budget analysis of the Mexican Chamber of the Construction Industry (CMIC) unveiled a negative outlook for the energy sector. According to the analysis, CFE’s public works for this year resulted in total spending of MX$11.42 billion (US$591.3 million), 22 percent lower than the previous year.

According to INEGI, this August, the production value of construction companies dedicated to electricity and telecommunications barely reached MX$680 million (US$35.1 million), the lowest amount reported since 2006. Likewise, during the first eight months of the year, the participation of these companies was reduced to 2.9 percent. In 2019 participation reached 8.2 percent in the same period. The highest investment ratio occurred in Dec. 2018, when the value of the firms that carried out infrastructure works for generating and distributing electricity and telecommunications reached MX$3.36 billion (US$174.2 million).

Victor Ramirez, Partner, P21 Energy, stressed that in recent years, CRE rejected many permits for private companies. Furthermore, he pointed out that CFE faces economic problems that hamper its ability to invest in infrastructure, transmission or energy distribution.

"Before the attempted Energy Reform by President López Obrador, generation permit procedures were already delayed for more than a year under the excuse of the COVID-19 pandemic. This reflects that CRE has political reasons to block the development of private power plants. Permits have been blocked to keep CFE plants working, which should be out of operation by now. They are old, unsafe, expensive and polluting," said Ramírez.

In this scenario, electricity and telecommunications companies have been forced to adapt by migrating to other sectors, to be subcontracted under more unfavorable terms or even to rent their equipment.

On the other hand, the participation of oil and petrochemical construction companies in the industry increased from 6.5 percent to 14.9 percent from January to August 2022. 

According to BloombergNEF’s annual Climascope assessment, energy production in Mexico remains heavily weighted toward fossil fuels, with natural gas, oil and coal together. In contrast, during the administration of President Lopez Obrador, investments in clean energy projects have fallen drastically, from US$4.25 billion in 2019 to US$705.9 million in 2021.