Energy: A New Balance

As time passes and the end of President Andrés Manuel López Obrador’s term approaches, some perceptions prevail in Mexico’s energy sector that were difficult to observe in 2018. The lack of anticipation has nothing to do with an inability to project the sector into the future, but with something much more revealing: in the last few years, the energy sector has been working without a roadmap.

Ever since December 2018, the intuition of a single man prevails in all energy matters in Mexico. This man has been accompanied by a compact group of professional politicians who have made important decisions that put the concept of the state before the logic of the market. During the first half of the current presidential term, the lack of planning and the erratic imposition of said state logic has generated a deep uncertainty in both the hydrocarbon and the electrical industries.

This uncertainty was mainly associated with the pause in the oil bid rounds and the cancellation of the energy auctions. Both decisions were imposed by Lopez Obrador’s administration without consulting private companies.

The Mexican government closed its doors to the private sector, giving up on transparent and competitive schemes that were built within the framework of profound legal changes. Overnight, many of these companies saw their investments jeopardized, not only in the projects that they had already executed, but in projects that were yet to be carried out as well. The truth is that their concerns were supported: the rules with which they had decided to invest in Mexico’s energy sector were changed, without consensus or legal support.

An element that added to this uncertainty was the relationship that the Mexican government began to forge with private companies in the sector. With the arrival of the Fourth Transformation to the public sphere, when the government started making decisions in favor of public energy companies, representatives of the private sector sought channels for dialogue with the authorities. At that juncture, it was quickly demonstrated that the government of López Obrador offered no channels for dialogue and no will to solve the concerns of private companies. This led to the withdrawal of oil companies and the combative approach that energy companies began to take.

This confusing situation reached its zenith between 2021 and 2022, when the president introduced different proposals to Congress in order to modify the legal framework for the energy sector. The idea of ​​translating into law the claims that until then had been limited to administrative acts to strengthen PEMEX and CFE ended up derailing any attempt at dialogue between the government and private companies.

It is interesting to observe that, in the legal confrontation that resulted from the reforms that the Fourth Transformation submitted to Congress, the opposing strategies implemented by private companies varied depending on their industries. While oil companies defended their interests through institutional means, the companies from the power sector chose to follow different paths. These actions highlighted the differences between the government and the private sector, but also radicalized their positions – at least that of the governmental authorities who exert influence over President López Obrador.

The differences, which are still being litigated in the Supreme Court, have not allowed the changes proposed by the government to be enforced. It is within this context of improvised ideas and disagreements that certain perceptions are beginning to take shape.

In the oil and gas industry, particularly in the fuel markets, the authorities have broken the administrative silence and are gradually granting permits for private companies to establish gas stations. This advancement, although small, serves to take the pressure off a pot that was about to explode.

In the power industry, CFE has begun renewable energy projects. In the process, it has incorporated companies willing to accompany them along this path. Other CFE projects, which contemplate substantial investment amounts, have been planned and are being developed with the support of transnational companies. The establishment of a new status quo has allowed the government to build the perception that their differences with the private sector have been resolved.

It is important to mention that the limited openness by the Mexican government in recent months is largely due to pressure from the US. The consultations that have been held within the framework of the USMCA to resolve concerns in energy matters, as well as the constant visits to Mexico by US government officials, have served to overcome the barriers that some members of the Fourth Transformation have built around the Mexican president. With the increased efforts of the US, López Obrador has had access to a more complete picture of the challenges of the Mexican energy sector.

Beyond this new balance, it is clear that the most important challenges have not yet been resolved. The different actors in the energy sector know that access to affordable, safe, sustainable and modern energy is not guaranteed in our country and that the progress to guarantee it, under the new status quo, is slow and tortuous.

The energy to-do list is long and endless. Even so, there is no sliced bread to be invented: If we want to move faster, it is necessary to incorporate private companies in solving the energy problems that exist in Mexico.