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López Obrador Defends Far-Reaching Energy Reform Proposal

By Cas Biekmann | Tue, 10/05/2021 - 17:00

The constitutional reforms President López Obrador sent to congress have caused waves of criticism from the private energy sector, industry analysts, as well as other political parties, with many considering these modifications more radical than previous legislative efforts, like the bill that passed through congress earlier this year. In face of the criticism, the president stands his ground.

Industry insiders pointed out how far-reaching proposal to reform the constitution really is. If it were to pass Congress, for which the government would need to win a significant number of votes outside of its own alliance, the energy sector would effectively be handed over to the state.

The proposal includes that independent authorities such as CRE, CENACE and CNH are to be absorbed and the CFE would reintegrate its subsidiaries. Importantly, the government could gain the power to cancel any generation permits handed out to private power producers. Through this manner, the CFE could reach its desired goal of having a 56 percent market share, leaving the remainder of the market to the private sector. López Obrador also takes aim at self-supply contracts, asking how it is possible that major businesses pay less for electricity than common households. 

Opposition parties PAN and PRD were quick to denounce López Obrador’s latest initiative, but the PRI did not speak out initially. It has since released a statement saying it is open for debate, “under the premise that national growth and development should be promoted, without affecting Mexican families,” suggesting that at least some of its legislators could be swayed to support the government´s initiative.  

In his daily morning press conference, the president put this debate under tension as he suggested the opposition would scramble to defend the interests of private power producers instead. “It will be very interesting to observe these legislators, because it will become clear if they are popular representatives or simply employees of groups representing economic and political power,” said López Obrador.

According to the government, the tangible possibility of the reform failing to pass will put Mexico in a “difficult position”, as it would mean that higher electricity prices can no longer be prevented. López Obrador says that liberalizations do not actually bring costs down, pointing toward Spain as a prime example. However, critics stress that many other implications lurk over such a reform: by pulling the foundations from under the electricity market, the country’s economy will take a massive blow and possibly enter in a direct conflict with other governments, including the US. “The imposition of this reform would imply that the most modern, clean and efficient plants that belong to the private sector stop operating, violating the international treaties of which Mexico is part,” said the Business Coordinating Council (CCE) in a statement.

López Obrador has consistently criticized the liberalizations of the 2014 Energy Reform, saying it has damaged state productive companies PEMEX and CFE in favor of profits for the private sector. The president wants to see state-owned industry work as a “lever for development” but has seen his previous measures and legislative efforts stranded in courts, which ruled that these efforts were unconstitutional. The previous bill is still under review by the Supreme Court, though energy law experts expect the highest courts to rule them as unconstitutional too. Despite the government’s setbacks, it did manage to exert its position by slowing down permitting processes and expanding its influence over independent bodies and regulators.

Photo by:   Gobierno de México
Cas Biekmann Cas Biekmann Journalist and Industry Analyst