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Report: Mexico's contract disputes with gas pipeline companies near resolution

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Report: Mexico's contract disputes with gas pipeline companies near resolution

The Mexican government has reached an initial agreement with four energy companies in efforts to resolve ongoing disputes in natural gas pipeline contracts, the Wall Street Journal reported Aug. 25, citing people with knowledge of the talks.

The agreement with Grupo Carso SAB de CV, TC Energy Corp., Fermaca Global LPand Sempra Energy unit Infraestructura Energetica Nova SAB de CV could be announced Aug. 27, after another negotiation on Aug. 26, the report said.

The potential deal would result in Mexico paying higher fees to use the gas pipelines over the next 10 years, but its realized nominal savings would amount to approximately $600 million, according to the Wall Street Journal's analysis of the draft agreement.

If the deal is approved, the Sur de Texas-Tuxpan marine gas pipeline completed in June would also be allowed to start operations, according to the report. The pipeline's start-up, which is expected to boost Mexico's gas capacity by 40%, has been delayed due to the contract conflicts.

Carlos Slim, billionaire and owner of the Mexican company Grupo Carso, reportedly proposed a deal in which the government would pay fees reset to their average across the length of the contracts and discounted by 5% to 10% per pipeline, instead of fees that would increase yearly for 25 years as stated in the original contracts, the sources told the publication.

However, the proposal would extend the contracts for five more years with higher fees in the first half of the contract term than those in the original arrangement, according to the report. In the long run, the increased upfront fees may be more problematic for the Mexican government, despite the possible nominal savings of $600 million, the report said.

Three of the four pipeline companies also expressed concern that the Mexican government may renegotiate upon realization of the deal's increasing short-term costs, the sources told the Wall Street Journal.