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News Article

Suspension Against Energy Reform Lifted

By Cas Biekmann | Wed, 07/07/2021 - 11:52

A court has lifted the indefinite judicial suspension issued against a reform of the electrical industry law (LIE) pushed through congress by President Andres Manuel López Obrador earlier this year. The hitherto suspended reform functions to prioritize state-owned utility CFE to the detriment of private power producers in the market. López Obrador aims to reverse incremental parts of the 2014 Energy Reform that liberalized Mexico’s energy sector in his bid to “rescue” the country’s state-owned companies.

“Considering that by themselves they do not cause any harm to individuals, a court revoked the definitive suspension of the reforms to the Electricity Industry Law,” said Jesús Ramírez, a spokesman for the president on Twitter.

Even though the suspension has been overturned because judges established that there are no general direct effects on companies, private players can now push for new legal protection measures against specific parts of the reform that directly affect their business. Legal experts furthermore point out that other general suspensions against the reform are still in effect and that private companies will therefore not immediately feel its effects. Nevertheless, this new reading of the legal issue marks a break with the many suspensions that came before. Mexico’s Supreme Court will have the final say in the matter.

When the reform passed through Congress in March of this year, it was immediately met with a flood of injunctions from private power producers, called “amparos” in the Mexican legal system. Private companies argued that the change in the energy dispatch, which would move from an economic hierarchy to one favoring CFE’s energy, went against the principles of free competition anchored in the Mexican constitution’s Energy Reform.

The reform also granted the Mexican government more power in regards to the potential review and suspension of self-supply contracts, a pre-energy reform scheme allowing large-scale energy users to arrange their own power supply, as well as other supply contracts that the executive had signed. CFE and López Obrador often criticized the scheme because they saw it as too generous for private companies and detrimental to CFE, which ended up footing the transmission bill. Another change pushed by the reform aimed to give Clean Energy Certificates (CELs) to old but clean CFE power plants.

López Obrador hinted at a constitutional reform after the reform was suspended initially, but failed to reach the supermajority in congress needed for such sweeping changes during Mexico’s mid-term elections on June 6. Despite the setback, López Obrador said he would still look to push reforms, saying that the onus of CFE’s demise would be on the opposition if they decided to vote against his initiatives. 

How the Supreme Court will rule in the end is unclear, but industry insiders highlight how the entity fills its role as a political tie-breaker. “The Supreme Court might interpret [the recent election results] as a call for more moderate change in the energy sector. By the end of 2021, we will see the Supreme Court make a political decision based on the mandate of the elections in regard to how the future of the sector should be shaped,” said Hector Olea, President and CEO of Gauss Energía to MBN.

Cas Biekmann Cas Biekmann Journalist and Industry Analyst