Opposition Begins Energy Reform Negotiations
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Opposition Begins Energy Reform Negotiations

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María José Goytia By María José Goytia | Journalist and Industry Analyst - Wed, 03/09/2022 - 11:14

Approval for the energy reform promoted by President López Obrador is beginning to show signs of hope following the culmination of the Open Parliament discussions. Two key opposition parties, PAN and PRI, as well as members of the private sector have shared their openness to negotiating with the federal government to pass the reform in Congress.

President López Obrador will have to negotiate with the opposition to achieve the approval of one of his desired constitutional reforms. According to El País, contacts between the PRI, PAN and MORENA have grown deeper in recent weeks. Partisan talks already established "a very clear idea of what may be acceptable" regarding the approval of the energy reform. This would be the first time that the president accepts changes to his original proposal and shows efforts to foster consensus between opposing political forces.

In the June 2021 election, the president’s party, MORENA, and its parliamentary allies lost the two-thirds majority in Congress necessary to approve constitutional reforms. Now, the support of an opposition party is required to approve such far-reaching initiatives. At the same time, opposition parties PAN, PRI and PRD formed a political alliance to exercise a legislative counterweight via an opposition block to the president’s initiatives.

The division in Congress has caused the vote on the energy reform to be postponed. In December 2021, Congress agreed on the creation of an Open Parliament so stakeholders and experts could present their points of view, both in favor and against the reform. The forums ended on Feb. 28.

Initially, MORENA tried to tilt PRI votes in favor of the reform, something that would have also disintegrated the opposition alliance in Congress. In the end, PRI stood firm in its position against the reform as it is. Nevertheless, the alliance has opened the door to compromise.

Negotiations may dilute President López Obrador's initial reform and soften controversial standpoints on the public agenda. The removal of the independent regulatory bodies and the granting of 54 percent of the electricity generation market to CFE are the key battle areas. According to El País, PAN deemed the government’s absorption of regulatory bodies CRE and CNH unacceptable and therefore non-negotiable.

The opposition parties in Congress are not the only ones that have sought to dilute the original reform to avoid major problems in the future. Following the visit of US diplomats to Mexico to discuss the climate agenda and clean energy development, MORENA’s parliamentary group in the Senate has begun drafting a proposal to change the points that may violate Mexico's free trade agreements with North America, mainly through USMCA.

The private sector has also built bridges with the government to promote a less aggressive reform. Oscar Scolari, CEO, Rengen Energy, pointed out that the private sector wants to reach a satisfactory agreement with the government regarding the reform. "I am sure that the large producers and generators in Mexico are willing to sit down and talk with the government to reach an agreement. We must negotiate openly and reach a satisfactory agreement for both parties," said Scolari in a Forbes interview.

The vote on the energy reform could still be postponed until June 2022, after this year’s local government elections. Negotiations between political forces to modify the president’s initial energy reform are crucial to the future of the sector. The introduction of the reform generated a lot of uncertainty regarding private investment protection, which has disturbed investor confidence and has slowed down Mexico’s clean energy transition.

The Mexican Council on International Affairs (COMEXI) warned in a recent report that if the energy reform is approved without any modifications, it will cause "irreparable damage" to the electricity market and energy consumers. It could also cost the treasury up to US$25 billion in compensation for renewable energy projects. Therefore, experts believe that these signs of compromise are beneficial for the future of the sector.

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