The Energy Reform’s Future Lies in CongressBy María José Goytia | Wed, 04/13/2022 - 14:06
The Supreme Court reactivated the Electricity Industry Law, after a split vote failed to declare its unconstitutionality. Meanwhile, US Ambassador Ken Salazar responded to the Supreme Court’s decision with concerns about investment and litigations. Furthermore, Prime Minister Justin Trudeau spoke to President López Obrador about Canadian investment in Mexico’s energy sector as diplomatic pressures from Canada increase due to regulatory uncertainty. In other news, the Mexican Congress will vote the Energy reform on Easter Sunday, after MORENA delayed the voting due to lack of support from opposition parties for approval.
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The National Supreme Court of Justice (SCJN) voted on the constitutionality of the Electricity Industry Law (LIE), which passed through Congress in 2021. With seven votes in favor of unconstitutionality and four against, the LIE will reactivate, yielding CFE a stronger position in the market. However, the lack of a qualified majority means legal routes remain open for those directly affected by the law. The split vote allows the electricity law approved on March 9, 2021, to remain in effect. The resolution returns more control of the electricity market to CFE, as it establishes a dispatch preference for its electricity generation, regardless of costs or pollution levels.
Amid the reactivation of the Electricity Industry Law of 2021 (LIE) by the Mexican Supreme Court, the US Embassy shared a statement warning that the decision will bring litigation against Mexico, as well as a further slowdown of private investment. In addition, US Ambassador to Mexico Ken Salazar also stated his position on the vote and its potential impact on North American competitivity.
The Congressional vote on the energy reform suffers yet another delay. Due to the opposition’s absence of support, MORENA is still maneuvering to get the missing votes for the reform’s approval, which requires a supermajority. After publishing the reform’s ruling, MORENA postponed the vote until Easter Sunday, seemingly as a last resort.
Pressure from North America on the Mexican energy sector is mounting, as Canada joins the US in its stance against the new Mexican energy reform. After US officials communicated their concerns to the Mexican government, Canadian Prime Minister Justin Trudeau spoke with President López Obrador on April 5 about the relevance of Canadian investment to the Mexican economy. Canadian investment in Mexico's energy sector is equivalent to US$10.4 billion, of which US$4 billion went to renewable energy. In addition, Canada is a relevant economic stakeholder in the Mexican mining and manufacturing industries.
Amid the vote on the energy reform in Congress, the Biden administration increased its political pressure on the Mexican government regarding open competition in the energy sector. The US Trade Representative, Katherine Tai, wrote a letter to Mexico’s Minister of Economy, Tatiana Clouthier, with a sharper tone regarding the high-risk US renewable energy investments face under the reform.
The Mexican Institute for Competitiveness (IMCO) released a new feature on its website: Energy Monitor, a tool that features up-to-date information and analysis on current events regarding the electricity market and energy policy. The team behind the tool said that it can facilitate the private sector’s decision-making, as well as that of the Ministry of Finance and regular citizens.
Industry experts fear that the Mexican solar sector is currently experiencing unprecedented levels of uncertainty, as the energy reform awaits its Congress vote and a rupture in the technology’s supply chain stability complicates the accessibility of solar technology.
Industry group leaders shared their concerns regarding possible power shortages during the General Assembly of the Nuevo Leon Transformation Industry Chamber (CAINTRA). Directors of companies and associations such as Alfa, CONCAMIN and Ternium were some of the most vocal in asking the federal administration for measures to enable cost-efficient energy with the certainty that regulatory practices will not be severely modified along the way.