Mexico’s Energy Counter-ReformBy Juan Manuel Ávila Hernández | Fri, 10/02/2020 - 13:30
One of the main objectives of the past Energy Reform was to develop a market where a necessary investment in energy infrastructure would be promoted. This reform was not a sort of wild, wild West market for the industry, but more of a sophisticated market like our trade peers in North America, bringing us closer to the dynamics of both the US and Canada. An integration between nations was one of the promises this reform introduced. Now it seems we are heading backward at a very dangerous speed.
Last week, the president and his political party started pushing their way through the Congress, mainly based on old ideas that are no longer valid, with a special focus on nationalism and ideology more than reason and facts. Needless to say, an energy counter-reform eventually was going to be proposed due to the political program of this administration, although the message has changed throughout the past 21 months. If we take a closer look, we can see that during the election campaign, when the energy industry was mentioned the message was “contracts will prevail but are going to be reviewed so we can confirm that no corruption happened.” With the anticorruption flag being waved, the industry was expecting a sort of general check-up on contracts but no major changes to the law. When elected president, the second big message from the López Obrador administration was that the law was not going to be changed for at least the first three years of his mandate, paving the way to a change on the main message and warning investors that the market was eventually going to change. That was for most of last year until October, when the government introduced a bill to change the CEC (CELs) market. In the end, this measure was contested via lawsuits and it seemed that things were going to be left where they were. It didn’t go that way.
Throughout 2020, the Mexican government has amplified its rhetoric against the private sector, especially the energy industry. The year started with news of an infrastructure plan especially for the industry, and the dates for the so-called “presentation” were leaked throughout the months of January and February. In the end, the dates were continually postponed and then COVID-19 happened. The lockdown clearly changed the governmental rhetoric and focused its attention on the main challenge ahead in the health sector.
While everyone was concentrating on how all the economic projections placed Mexico on a steep GDP decline, the radical wing of the government won another battle through a shameful presentation at the OPEC+ meeting in April. In that month, not only did we witness poorly conducted foreign policy but we also saw an historic event when oil prices went into negative territory. As if that wasn’t enough, in the same month, CENACE published an unlawful resolution that was also contested through lawsuits. In May, SENER’s agreement was also published without proper due, which led to the resignation of the head of CONAMER because the federal administration, in particular the Ministry of Energy, didn’t want the process to undergo a regulatory inspection on whether or not this regulation would result in extra costs to citizens and companies.
Now, we are witnessing the rise of radicalism with MORENA making public its intention to introduce a bill that will lead to an energy counter-reform, breaking one of López Obrador’s first promises, both during his campaign and while in office, which was not to change the law in the first three years of his term. If the bill wins an endorsement from the president, then we can be certain that the industry will face a major challenge for the next four years.
It definitely seems that Mexico is heading towards the wrong direction in regards of sustainability and energy transition. It’s a huge pity that one country that used to be within the Top 10 most attractive countries to invest on renewable energy is now placing a huge effort to go the other way around.