Mexico energy project permit delays seen as blocking growth

Mexico City — The Mexico government is de facto blocking the growth of private energy industry by denying it the necessary permits to build and operate, sources have told S&P Global Platts.

From wind and solar projects to natural gas pipelines and gasoline facilities, all industries are being affected by the current administration's strategy to benefit CFE and Pemex, which are state-owned companies, observers say.

According to lawyers and industry associations, there are hundreds of projects on hold. The agencies said to be delaying permits are energy regulator CRE and the Energy Ministry SENER, as well as ASEA, the environment and security watchdog.

"I alone have over 50 projects, mostly renewable energy, but also a few midstream, pending approval from one or more agencies," said a lawyer from a top international law firm who declined to be identified because he fears retaliation. "If you miss a permit, you can't bank the project. If you can't bank, you can't build," the lawyer said.

The administration of President Andrés Manuel López Obrador has openly said it intends to strengthen Pemex and CFE, the old monopolies, and that it will not continue with the vast majority of investment initiatives stemming from the 2013 reform.

"It is not that we do not want to invest in the country, we do, but we cannot work faster if we have to wait months for one permit and then more for another," said an executive from a US major gasoline company that is currently awaiting permits from the Energy Ministry, SENER.

TC Energy, which is awaiting resolution from indigenous consultations by the government for one of its pipelines in Mexico, said Thursday it still considers the country an interesting market, but that future investment decisions will be based on how this turns out.

TC Energy, formerly TransCanada, won the contract to build the 287-kilometer (178-mile) Tuxpan-Tula pipeline in 2015. The structure, which runs across four states in southern Mexico, would supply CFE and private users with natural gas from the Gulf of Mexico. But indigenous communities opposed the project and stalled the construction. Early in 2020, the president decided to cancel the original route and reroute the line.

Now, TC Energy must negotiate the new route with authorities and get all the permits again.

"We would see successful conclusion (of those negotiations) as demonstrating a willingness for further foreign capital investment and that would be a basis upon which we look at future opportunities," said Francois Poirier, CEO during the company's fourth quarter 2019 earnings conference call.

New teams

According to lawyers, one of the hurdles to move forward with permits is the little professional experience or the lack of technical competence that some of the new officials in the government have.

The new head of social impact studies at SENER, Rosa Maria Aviles, is a politician who majored in physics, according to her official bio. Permits from her office are essential for the start of construction of all energy projects, as are indigenous communities consultations.

Rosanety Barrios, an independent analyst in Mexico City who held various senior positions at SENER during two previous administrations, told S&P Global Platts some of the people who are in government are retirees from CFE and Pemex.

"Some are as old as 90 years of age and have little knowledge of new technologies," she said.

SENER did not respond to requests seeking comment. CRE did not respond to requests for comment.