Claudio Rodríguez
Partner
Holland & Knight
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Expert Contributor

The Mother of all Energy Proposals in Mexico

By Claudio Rodríguez | Mon, 11/08/2021 - 14:51

Recent events have already had an important impact on the final global perception of the energy sector, in general, and in particular, the power/renewables markets in Mexico. This is, apparently, the mother of all fights resulting from the vision of a leftist federal government against an open energy market in Mexico. The former is founded on a political ideology. The latter is founded on the rule of law. That is the main confrontation.

The real question is, aside from ideological positions, if the Mexican state as an undoubtedly sovereign entity under international law, has the sufficient financial, technical, operational and even patent resources to provide efficient, low-cost and reliable electricity supply to both commercial and private off-takers. Another rationale is, how does the historical vision of an all-powerful state as understood in 1973 work in a 2021 scenario when all rationales have changed?

Talking about changes, changes to the Mexican Constitution have specific locks, meaning that the López Obrador government needs the approval of opposition parties for such a power bill to pass. In other words, thanks to democracy, this constitutional reform is far from being approved just because the Mexican president requests that it happen.

Having said that, we are far from knowing if the initial bill as proposed by López Obrador will survive the critical legislative analysis of all political parties. Since the governing party does not have the so-called “qualified majority” to amend the Constitution, the administration will need to negotiate with opposition parties. Even if harsh strategies are followed, my personal perception is that the proposal is so debilitating that serious Congressman, even within the official party, might and shall reject it. This is called the “Common Good.”

The above is not a historical or political position but the recognition or the confirmation of Mexico as a country driven by the rule of law and not a country kidnapped by ideology.

Even though its value, the freedom of speech regarding such a proposal, has been unilaterally undermined by the federal government, if approved as it is right now, this incongruent proposal will trigger international lawsuits under international commercial and investment protection treaties, both duly acknowledged and included as part of the Mexican Constitution by means of its article 133.

The immediate step is to wait for the negotiation stage of the bill to start among serious parties. Secondly, to analyze whether fundamental changes, new articles and amendments are forced through by opposition parties. Third, even longer in time, is to see the final bill as enacted and in force and its real effects.

This is certainly an important event that will undermine the trust of international investment in Mexico. Now we are talking about electricity, the winding up of federal energy regulatory bodies, indirect expropriations of power generation facilities (nationalization) and the unilateral cancellation of lawful permits and private agreements, both between parties and between power market participants and the Mexican state’s productive companies (namely CFE). Tomorrow, it might be another topic.

If approved on its original terms, this might open the indirect expropriations of other industries, the unilateral cancellation of lawful permits and private agreements in the “people’s interest,” and the creation of new public entities in charge of other economic activities in Mexico, both executed by national and international entities.

Other data” as constantly expressed by the federal government, have no impact whatsoever on economic, technical and legal rationales to attract foreign investment into Mexico, which is even worse in the country’s power and renewables markets.  

Telling the truth about such a complex industry, its historic background, the sound, legal rationales and the effects of having an unlimited, un-audited, single-handed company in charge of all the main resources of all industrial and commercial activity in Mexico shall be an immediate priority for serious private stakeholders in Mexico.  

And no, this is not treason to the homeland as dogmatic positions have leveled against lawyers defending the rule of law. This is simply the law.

Depending on one single participant in such a fundamental resource (even if it is not a natural resource but an industrial one), shall be discussed and will surely be discussed by global entities when deciding where to invest billions of dollars in new countries.

Who will fill the gap? A financially stressed state? If so, at what long-term debt cost? Is it acceptable to affect private investments and breach international treaties? What would be the cost for Mexico if such is the decision? Who will pay the bill, all Mexicans or only the “good ones” in the eyes of autocracy?

Questions to consider in the coming weeks and aside from dogmatic and ideological positions.

For the common good of Mexico, this country needs its institutions, including the legislative power, to properly work.

Photo by:   Claudio Rodríguez