FEATURE: In Mexican congressional panel talks, 'experts' debate move to help state power utility

Mexican electricity market participants and observers are divided over constitutional reform proposed by President Andres Lopez Obrador to reverse the 2013 opening of the country's power sector, with Mexico's Congress holding a month of panel discussions featuring "experts" named by political parties.

Lopez Obrador's initiative, presented in late 2021, is his fourth attempt to change the rules of Mexico's electricity market to benefit state power utility CFE. All previous attempts have been blocked by Mexican courts, and according to the leftist president, the only option the government has to "save CFE" was to change the law.

Over the first days of the panel discussions, both sides have repeated the same arguments they have used for the last year.

For Lopez Obrador's Morena Party and its allies in Congress, their argument is that Mexico's 2013 liberalization of the power sector, under the previous PRI party administration of Enrique Pena Nieto, was designed to slowly erode the role of CFE in power generation, favoring a handful of private power companies. The 2013 liberalization, they claim, was carried out by a corrupt political elite that partnered with the private industry. The reforms offered by Lopez Obrador, they argue, would prevent private companies from gaining more market share than CFE, which they say could jeopardize universal access to electricity or expose users to extreme price fluctuations. To support their view, the president and supporters of his initiative have used a recent power shortage and price spikes in Spain as what they said was an example of what happens when too much power falls into the hands of private companies.

Among those against Lopez Obrador's initiative, experts invited to the panels point out the economic and technical limitations CFE has to meet Mexican electricity demand and to meet international commitments to cut carbon emissions.

Need for cooperation

Private investors participating in the power sector are hopeful that during this debate they can find common ground with the government in their visions for the future, Carlos Hernandez Gonzalez, a spokesman for Coparmex, the largest employers association, in the country told S&P Global Platts.

"We cannot continue to be divided; we need to start proposing solutions together," Hernandez Gonzalez said, adding that the private power industry shares the goals of the CFE to have clean, cheap energy.

No one can provide all the electricity in the country, not CFE nor the private companies, Carlos de María, vice president of the Mexican Academy of Energy Law, said duringone of the panel discussions. "We need to start looking for cooperation instead of attacking each other," said De María, also a lawyer specializing in the Mexican energy industry at law firm Galicia Abogados.

Rosanety Barrios, who headed the natural gas and petrochemicals division at the Energy Secretariat during the Pena Nieto administration, agreed with De María during a panel discussion, saying that CFE cannot take care of the energy needs of the country and provided official data to back her claim.

Mexico will have to invest over $80 billion in transmission and distribution lines as well as generation in the next 15 years, Barrios said, citing the Prodesen, the government's multi-year plan.

"But the country does not have the money." she said. So far, in this administration CFE has not been assigned any federal budget to grow its generation capacity nor to improve its transmission and distribution network, as all the budget of the government has been allocated to the three main infrastructure projects of the administration. The government is simultaneously building a $10 billion train in the Yucatan Peninsula; a $9 billion, 350,000 b/d refinery for state oil company Pemex and a $5 billion international airport outside Mexico City.

Most observers and participants consulted by Platts believe the initiative will ultimately be halted, either in the lower house after the discussion or in the upper house, where the Morena Party does not have a majority.

The Lopez Obrador administration and its allies are short more than 50 votes to pass the bill, and only opposition center-left PRI and conservative PAN parties have that number of votes to aid Morena. There is some political talk in Mexico that PRI may reach an agreement with Morena that would allow Lopez Obrador's move to succeed. One possible indication of such a deal, according to several sources: Lopez Obrador recently appointed some former PRI state governors as ambassadors.

'Private investments at risk'

Some in the industry are more skeptical about the outcome of the debate and fear it might just be a facade.

Considering the forums are being organized by Morena, the debate is likely to be used as a display for the ideas in favor of the reform, said Marcial Diaz Ibarra, a Mexico City-based consultant.

"The technical views are likely to be overshadowed by politics, which is worrisome because there are private investments at risk," Diaz Ibarra said.

The profiles of the panelists scheduled to speak during the ongoing congressional discussions show that most of those who will speak in favor of the reform have little experience in the market or are tied to the government in some manner. During the first day of debate, even CFE officials and union leaders were allowed to speak in favor of the reform, which mainly benefits the utility.

Diaz Ibarra is skeptical about the relevance of the discussion, but believes the initiative will ultimately be blocked or downsized. Some have different views.

Eduardo Prud'homme, a partner at Mexico City-based consultancy Gadex, believes the initiative will be passed.

"The president needs something emblematic to go down in the history books," Prud'homme told Platts, adding that Lopez Obrador has shown he is stubborn and perseverant.

So far, said Prud'homme, who served in the Pena Nieto administration as head of the planning and technical management of the national Energy Regulatory Commission, the president has delivered on every promise he has made. This should be no exception, he said,

"This debate is a way to argue the reform was approved through a democratic process, when in reality the decision has already been made," Prud'homme said.