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News Article

What a Constitutional Change Could Mean for the Sector

By Cas Biekmann | Thu, 08/13/2020 - 09:12

According to a memorandum coming directly from President Andres Manuel López Obrador, Mexico might need to change its energy policy to be able to rescue state production companies PEMEX and CFE, reported Bloomberg News. The president goes as far as to suggest a constitutional change to the energy reform is not out of the question. MBN experts weigh in on the issue.

The document, circulating on July 22, does not contain exact steps and actions but does provide insight into the president’s vision on how to strengthen the state’s role in the energy sector. He suggests that a constitutional change is not off the table to facilitate the administration’s ultimate goal to once again bring back PEMEX and CFE to prominence.: “We must advance to the limit permitted by the current legal framework. However, if in order to apply the new rescue policy to Pemex and CFE we need to propose a new energy reform, we do not rule out that possibility,” the president wrote.

The memorandum is not the first move in the president’s efforts to make their ultimate goals a reality. A rift between public and private sector has been widening due to the government’s cancellation of long-term energy auctions, oil bloc auctions and reconfigurations of clean energy certificates. More recently, the government turned its efforts to halt clean energy generation from private companies. A constitutional change had so far remained outside of the discussion. If the president would be able to achieve a two-thirds majority to make the change a reality, it would mean a massive reshaping of Mexico’s energy market.

These changes would also have an unprecedented potential to cause shockwaves in the private energy industry. Nonetheless, a change in constitutional law brings one main benefit with it: an end to legal uncertainty. “If the government does not like the current laws, it should change them. But there is nothing worse than legal uncertainties,” said Cynthia Bouchot, Director General of Energía CB Consultores in an interview with MBN. New players will then be able to decide for themselves if it is worth investing. Nonetheless, rights acquired by private companies in the past cannot be ignored, she says: “This also means it needs to respect past investment rights. New players will know what the new rules of the game are and whether or not they can work within them. With the current measures the government is taking, regulation is so uncertain that companies do not know what will happen to them, including their already built projects.”

According to the memorandum, private energy generation would be capped at 46 percent. Though limiting, this figure is no small amount for the energy mix. To compare, Spain currently reaches just below 45 percent of renewable energy in its matrix, reported Renewables Now. A binding target for the European Union, considered to be a frontrunner in renewable energy adoption, is to achieve a share of at least 32 percent in the Union by 2030, according to the European Commission. Even though the figure takes Europe’s less developed states into account, it shows that Mexico’s cap of renewable energy is not dramatically low.

The data used in this article was sourced from:  
Bloomberg News, EU Commission, MBN
Cas Biekmann Cas Biekmann Journalist and Industry Analyst