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Mexico readies constitutional amendments in power sector after election

Highlights

Power reform first of three major constitutional amendments

Initiative to be presented by the end of 2021 or early 2022

Operations of existing companies to be respected

The Mexican Federal government will present an initiative to Congress to modify the constitution to restrict participation of private companies in the electricity market, President Andres Manuel Lopez Obrador said June 15 in his daily morning conference.

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The reform will be the first of three major constitutional amendments planned before the end of the president' term in 2024 and will restore the dominance of the state utility CFE, Obrador said.

"I hope I can present this initiative before the end of the year, or in early 2022," he said, adding that he hopes law makers understand the gravity of the initiatives and vote in favor.

After the liberalization began in 2014, private companies were allowed to produce electricity with newer, cleaner plants and now generate almost 50% of the power in the country, data from the state utility CFE showed. Companies using solar and wind technologies managed to install roughly 12 GW in the country through international auctions.

Mexico's power demand in 2021 is expected to remain around 44 GW, just as in 2020 levels, data from the energy Secretariat, SENER, showed, as the economy slowly recovers from the pandemic. The country reached a record demand in 2019 at 47 GW, the data showed.

"Company already in operation in the country will not be affected, but their participation in the market will be limited to 46%," the president said.

The announcement comes days after a June 6 election that gave more power to Obrador's MORENA party at the national level, but weakened it in Congress.

During the sweeping elections held June 6, MORENA won 11 of 15 gubernatorial elections and retained a simple majority in the lower house of Mexico's congress with its allies, but fell short of the two-thirds majority needed to revise the constitution.

Although MORENA came out of the election as a stronger political force ahead of the next presidential elections in 2024, the seats the party lost in the lower House of Congress now require alliances, panelists said June 15.

"The presidents party is in a weaker position to change the constitution without a two-thirds majority even with its allies. Now, they need the PRI to get it, which they did not need before," said Leo Zukerman, a political analyst during the panel organized by the Wilson Center.

The Institutional Revolutionary Party, or PRI, ruled Mexico uninterruptedly for seven decades until 2000 and has been in opposition to the president's agenda.

Viridiana Rios, instructor of US-Mexico politics at Harvard Summer School, agreed that a negotiation with PRI is needed at the Congress level, but highlighted that the gubernatorial victories are also important to change the constitution as local congresses have to ratify any modification.

The announcement follows a June 11 regulation by Mexico's tax and customs authority, or SAT, over imports and exports of hydrocarbons that market observers warn could limit competition, even in the upstream sectors.

The rule, which went into effect June 14, was the latest in a series of attempts by the Obrador administration to weaken, and eventually overturn Mexico's energy liberalization.