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CFE will renegotiate fixed capacity gas pipeline contracts: Lopez Obrador

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CFE will renegotiate fixed capacity gas pipeline contracts: Lopez Obrador

Highlights

CFE owns $86.5 billion in pipeline capacity payments over 25 years

Contracts will be renegotiated following exististing legal framework

Lopez Obrador criticizes Energy Regulatory Comission, calling it biased toward private sector

Houston — Mexico's state utility CFE will renegotiate its fixed-capacity contracts for natural gas pipelines built over the last decade, President Andres Manuel Lopez Obrador said Monday.

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"We are going to stop this perverse plan of destroying CFE so private companies can take over the electricity market," said Lopez Obrador during a webcast morning press conference.

CFE was forced into one-sided contracts to the benefit of private interests by previous administrations, especially in regards to the utility's strategy to produce energy using gas, Lopez Obrador said. An example is seven pipelines unfinished amid social conflicts and for which CFE owes $21 billion in fixed-capacity payments, he offered.

"It isn't ethical that CFE must pay sanctions for something that is outside its control," Lopez Obrador said. It is unreasonable that CFE must pay penalties without receiving any gas, he added.

Manuel Barlett, CFE's general director, said that CFE pipeline contracts would cost the company $86.5 billion over 25 years.

"If these contracts continue, CFE is heading into bankruptcy," Barlett said.

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Barlett said CFE is forced to make payments in the case of any force majeure that prevents the construction of the pipeline.

"We will restructure contracts so gas can continue flowing into the country without CFE paying absurd charges," he added.

Barlett said it did not make sense the division of the utility into subsidiaries, including the creation of its CFEnergia fuel marketing arm.

He added that CFE has to contract pipeline capacity but cannot be a pipeline owner, and that the utility has to sell gas to competitors.

Lopez Obrador said that contracts would be negotiated under the existing legal framework to respect the rule of law.

"We want to restructure agreements voluntarily under the law," he said. "We won't do this by force."

The state utility is currently assessing transferring its pipeline capacity to state-owned system gas system operator Cenagas to decrease its financial weight from these contracts, sources close to the situation told S&P Global Platts.

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CFE has moved from producing all of Mexico's electricity to only generating half its demand, Lopez Obrador said.

The policy of previous administrations was to contract with private generators while shutting CFE's own power plants instead of rehabilitating them, said Lopez Obrador, adding that he would reconfigure CFE's hydropower generation portfolio, operating the same turbines since the 1960s.

The privatization of Mexico's energy sector has led to an inefficient and expensive market, Lopez Obrador said.

The Mexican government has the goal of reducing power prices, something its plans to do with the help of private and foreign investment free of corruption.

Lopez Obrador criticized former public officials working with foreign energy companies, calling it unethical. The Mexican government will pass legislation to ban the private sector from hiring former public officials in areas related to their previous post by 10 years, he added.

The dismantling of CFE to benefit private companies is a policy that has also been promoted by Mexico's Energy Regulatory Commission said Lopez Obrador.

The Energy Regulatory Commission is an independent organism from the people at the service of private interests and conspiring against CFE, he said.

Lopez Obrador said he is sending his list of candidates to the Senate to elect four new CRE commissioners.

-- Daniel Rodriguez, daniel.rodriguez@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com