Fadlala Akabani
Secretary of Economy Development
Mexico City Ministry of Economic Development
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Expert Contributor

Mexico’s Energy Reform: Sovereignty, Transition, Development

By Fadlala Akabani | Tue, 03/29/2022 - 09:00

The energy reform proposed by Mexican President Andrés Manuel López Obrador guarantees energy sovereignty and transition to clean energies. The reform has at its core consumer energy price stability and accessibility. To achieve that, energy sovereignty, understood as the right of all people to have access to energy in sufficient and equal amounts, is key. Since the 2013 structural reforms, the commodification of energy in Mexico by private enterprises has imposed price surges and governmental subsidies to increase profits and satisfy investors in the energy sector. Additionally, energy generation has relied on a few foreign private companies at the expense of energy distribution with public infrastructure. Thus, energy sovereignty has been compromised to a point that large companies pay a lower electricity rate than the average home or a small local business. Furthermore, energy sovereignty has been aggravated by significant external shocks, such as the COVID-19 pandemic and the armed conflict between Russia and Ukraine.

Such events have skyrocketed electricity rates for millions of people in countries where the state has little or no participation in the energy sector. For example, Spain has suffered an increase of up to 500 percent in the electricity bill of homes since June 2018. And what happened when the Spanish government tried to put caps on energy tariffs? The oligopoly of private energy companies began to blackmail the government, saying they would reduce electricity generation. These companies put their economic interests before the well-being of the Spanish people. The energy reform ensures that such a strategic resource to the economy and the people’s well-being does not become a hostage.

Also, the energy reform does not represent any setbacks for the transition toward clean energy sources. In fact, it adds to the seventh paragraph of Article 27 of the Constitution: “the government must undertake the energy transition and use clean energy sources in the generation of electricity.” In this regard, Claudia Sheinbaum, head of government of Mexico City, has set an early example of what the energy reform looks like in terms of energy transition with the public policy "Solar City." Its objective is to implement the efficient use of solar energy in the main economic sectors of Mexico City. The cornerstone action is an 18MW solar power plant on the roofs of the second-largest wholesale market in the world, located in Iztapalapa, Mexico City. The Federal Electricity Commission (CFE), the state-owned energy enterprise, is currently funding and building the power plant with advice from the Ministry of Economic Development of Mexico City. CFE will oversee its operation and maintenance once its finished, allowing the reduction of approximately 13,000 tons of CO2 emissions and the consumption of 57,000 barrels of oil each year.

Currently, the energy reform is being discussed at the Mexican Congress in an unprecedented open parliament exercise. The views and arguments shared by the private sector, international organizations and NGOs will shape the scope of the reform but not its core, despite the misinformation and propaganda set up by mass media with political interests. It is false that the reform will cancel solar and wind energy contracts, forbid generation with photovoltaic systems, or that the national energy market will be monopolized by CFE. On the contrary, the initiative considers a 46 percent share of the electricity generation market for the private sector. No one can deny that the engagement of private actors is essential for the development and transition of the energy sector.

However, some media outlets and political parties seem to forget or simply ignore the fact that Peña Nieto's 2013 Energy Reform fell short on its promises and that it worked only for a few companies, not for the people. By the end of 2018, the price of electricity rose 59 percent for industries in Mexico in real terms and 17 percent for households; the price of Liquefied Petroleum Gas for end users, used in seven out of 10 homes, increased 51 percent; oil and gas production plummeted 30 percent and 24 percent, respectively; economic growth projections missed by 2.6 percent, and only 5,000 jobs were created in the solar energy industry after US$5.2 billion of investment in 30 power plants. Overall, the 2013 Energy Reform is unsustainable for economic development in terms of investment, production, and job creation.

The private sector simply does not meet the social demand for energy. It is focused on large businesses and companies. At the current rate of privatization, CFE will go bankrupt and vulnerable sectors will not be able to pay increasing commercial rates, including the 43 million domestic users. The design of the 2013 reform depends on transfers from the public to the private sector. The best example is Clean Energy Certificates. CFE is legally excluded from profiting from the use of renewable energies, even though it generates 55 percent of the clean energy in the country. Clean Energy Certificates represent to this day a US$300 million subsidy from CFE to private generators for clean energy auctions, paid, of course, by taxpayers. In other words, benefits have been privatized while losses have been socialized.

There is no doubt that neoliberalism compromises energy sovereignty and transition. Corruption, nepotism, and abuse have plagued the energy sector in Mexico since its latest privatization. The energy reform proposed by President López Obrador seeks to correct these distortions, create favorable conditions for economic development based on a sovereign and clean energy sector, and make sure that everyone anywhere in Mexico has access to electricity at a fair price.

Photo by:   Fadlala Akabani