Electricity Overhaul Hurts Investment, Says European Union

The European Union’s (EU) ambassador to Mexico said on Thursday that President López Obrador’s initiative to overhaul the electricity sector and place much of the industry’s control back into the state’s hands is a major cause for concern for European governments. In addition, it would curb Mexican investment.

“The brakes are really on new investment because there is a context of uncertainty, which means it is very difficult to invest in the current context,” said the ambassador, Gautier Mignot.

Other than investment concerns, valued at some US$13 billion, the overhaul would create problems for companies looking to clean up their energy supply in an effort to decarbonize. “Some companies are going to say, OK, if I cannot meet these objectives - which are global corporate objectives - well, I will need to leave Mexico,” added Mignot, who emphasized that the EU headquarters of many companies have already instructed their arms in other countries to begin working toward net zero targets. These need to be achieved within the next “two, five, 10 years,” he said.

Even if companies decide to stay, they effects could be severe. “Not everyone is going to withdraw from Mexico, but some are going to reduce their activity a lot, including companies from this [energy] sector and other sectors,” he said.

Meanwhile, Mexico’s government sees the electricity overhaul from a different point of view, arguing that the 2014 Energy Reform created a corrupt platform that favored private companies over state-owned players CFE and PEMEX. Vowing to rescue these state companies, López Obrador continues his mission to offset the changes his predecessors made to the constitution and the energy sector. Recently, the president pointed toward Spain’s market liberalization, which he claims resulted in the currently elevated prices in the Spanish electricity market.

Mignot asked the government to consider companies that have invested in good faith, without any legal problems, that have contributed jobs to the country, better protection for the environment and tax revenues. Furthermore, existing contracts between private players and CFE should continue to be respected. Mignot did see room for “some adjustments” in the rules of the government if they are properly negotiated with investors.

The EU ambassador agrees with his peers from Canada and the US, which have previously expressed their concerns about the policy changes in Mexico. The EU has previously expressed their worries, reported the European Commission: “The EU has taken several steps to raise its concerns. In particular, the Commission already raised concerns with the Mexican authorities in correspondence from The High Representative /Vice-President, the Commissioner for Energy and the Commissioner for Trade in July 2020. Concerns were also raised during the EU-Mexico Joint Committee, held on 22 June 2020. The Commission keeps monitoring the situation, together with the Member States and the industry, and will continue raising this issue through political and diplomatic channels,” reads the statement from May 2021.

The EU and Mexico successfully negotiated an update to its existing trade agreement in April 2020 which includes sustainability and investment protection clauses, though this has not yet entered into force.