Parliamentary Discussion on Energy Reform Begins
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Parliamentary Discussion on Energy Reform Begins

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Cas Biekmann By Cas Biekmann | Journalist and Industry Analyst - Wed, 01/19/2022 - 17:39

Discussions surrounding the López Obrador administration’s prized energy reform have opened in Mexico’s parliament. Featuring profound changes, the reform would drastically alter the status quo set in the constitutional 2014 Energy Reform. With the future of the electricity sector at stake, the battle lines between supporters and detractors are being drawn.

Energy, including the vast capital behind its development, is increasingly becoming a major fault line in Mexican politics. Earlier government ineffective efforts to undo the liberalizations of the energy sector and bring control back to the public sector’s hands have culminated in a proposal to reform Mexico’s Constitution. With the electricity initiative that President López Obrador introduced to parliament in late 2021, the government is taking an even firmer stance on public sovereignty in the sector. In the original proposal, private power generation contracts and permits are to be cancelled. Private participation in general would be capped at 46 percent, though all privately produced power would be sold to CFE, which would recover its legal monopoly in commercializing Mexico’s energy. The economically focused electricity dispatch, now in hands of grid operator CENACE, would be run by the state and actively favor CFE’s plants. Independent energy regulators are to disappear entirely.

Private sector participants find these changes too drastic, with many worrying it could destroy their business and investments outright. Many think the energy sector could be improved via other measures, since the new reform stands opposed to many international treaties Mexico is a part of and could slow the country’s efforts to combat climate change. “Of course, it is not necessary to change the Constitution to correct the imbalances of the electricity sector and it is certainly not necessary to violate the current and valid contracts,” wrote Hans Joachim Kohlsdorf, Co-Founder, Energy To Market, for MBN.

Along with the president, CFE Director Manuel Bartlett has continuously accused private energy companies of coming to Mexico to plunder the country’s resources and benefit from a corrupt energy market. The strong language at the highest level of Mexican politics aside, others have voiced more sensible arguments during Congressional discussions: “The nature of private generators is to want make a profit, otherwise they cannot function. That does not make them criminals: it means they are rational and job creators, but not providers of social wellbeing such as via electricity. For this reason, we need state intervention,” said CFE Manuel Hornelas to parliament when discussing CFE’s dropping participation in the energy sector.

As both sides take position, political analysts still see that the government’s chances to pass the proposal as it stands are slim. For a constitutional change, the government requires a Congressional supermajority, which it does not have. For this reason, it needs to find allies outside. Only the PRI party appearing to be open for discussion, but the political party has hinted it wants to see several changes to the proposal, as well as various other perks in exchange for its support. “We sense a proactive, prudent attitude [in parliament]. There are also federal deputies from other groups who have expressed their willingness,” said Manuel Rodríguez, MORENA representative and President of the Energy Commission in the Chamber of Deputies.

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