Arturo Carranza Guereca
Project Manager
Energy Akza Advisory

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Mexico's Energy Future

By Arturo Carranza | Mon, 05/09/2022 - 11:00

The rejection of Mexican President Andres Manuel López Obrador’s electricity reform by legislators is more than a political failure. It implies the continuation of a series of conditions within the energy sector that do not favor the development of projects. The latest amendments proposed by the Executive to the Mining Law, giving the state the exclusive right to exploit and use lithium, and which were recently approved by Congress, are a good example of the peculiarities of the conditions and the repercussions they will have on the oil and electricity industries.

It is evident that uncertainty prevails among most actors within the energy sector. Private companies dwell in a kind of limbo, where the participation rules that used to shape the 2013 energy model have not been completely abolished and the new rules that the current government seeks to impose have not yet been fully established.

This process of change has generated tension that transcends technical aspects. During the implementation process of these new rules of participation, companies have felt mistreated by the authorities’ methods. What was initially proposed at the end of 2018 as an energy policy to rescue the sector, in 2022 has had a balance of unfortunate consequences.

The desire – framed within the current energy policy – to strengthen public energy companies and to bring some order to energy markets, meant that the private sector would be turned into the villain of this story. The lack of an objective and orderly action plan brought another consequence: the erratic implementation of decisions that have fostered uncertainty.

The actions and measures carried out in recent years within the electricity sector include the suspension of electricity auctions, the attempt to modify the way in which Clean Energy Certificates are assigned and the unsuccessful attempt to increase transmission charges for renewable energy companies. These efforts have distanced the country from the environmental and technological future in which a large majority of nations are already immersed.

These actions and measures have been accompanied by unfriendly rhetoric from President López Obrador. What is said every morning during his press conferences at the National Palace has served to further strain relations, blowing up bridges of understanding and making it clear that the construction of a common energy project is an impossible task.

The coup de grâce that finally derailed the relationship between the government and the private companies investing in the energy sector was the constitutional initiative on electricity that the Executive submitted to the Chamber of Deputies at the end of September 2021. Although this approach addressed a multiplicity of elements, some of them very complex, in general terms, it was received with great concern by different actors, who observed in this proposal a simultaneous risk for the environment, the business climate and the public finances of Mexico.

These actors found a way to put aside their disagreements and confront the president in the legislative arena, not only because of the statement used to describe the explanatory statement of that constitutional initiative, but also due to the excesses of its proposals. Since that initiative was presented, until the day it was defeated in the plenary session of the Chamber of Deputies, its opponents knew how to read the moment’s importance and held a united position.

The rejection of the electical reform by Congress had at least two losers. The first was López Obrador who made this legislative proposal an issue of the greatest importance for the government he heads, not to mention that it became the first constitutional initiative sent by a president to be voted down by Congress.

The particularity and relevance of this fact explains why the day after the Lower House announced its results, the Executive decided to present its initiative to reform the Mining Law. The approval of this new reform, which only required the support of half plus one of the members of both chambers of Congress, limited the political blow that the rejection of the constitutional reform represented for López Obrador.

The second loser of the rejection of the electricity reform was the energy sector, which in recent years has been subjected to a whirlwind of poorly implemented measures. The best example of these is the recent approval of the Mining Law reform, which limits the possibility of lithium being exploited and used efficiently in Mexico. The mismanagement of the sector has not only generated uncertainty due to the lack of clear participation rules but it has also made it impossible to have a serious discussion about issues that need to be modified in the energy sector.  

Regardless, the fact that the political opposition is showing signs of life is good news for the country because it shows how useful it is to counterbalance the Executive. That is something that, in a democracy, must be valued by all citizens.