Mexican President Floats Energy Reform Reversal

Mexican President Floats Energy Reform Reversal
President Andres Manuel Lopez Obrador bolstered his defense of Mexico's embattled state-run companies.

(Bloomberg) -- President Andres Manuel Lopez Obrador bolstered his defense of Mexico’s embattled state-run companies, calling private rivals hypocritical and floating a constitutional change to reverse the country’s energy opening to foreign investors.

The president said Monday that he intends to take serious action to protect the interests of state oil producer Petroleos Mexicanos and electricity firm Comision Federal de Electricidad, known as CFE. Foreign companies ransacked the country and bribed officials in recent years, something the current administration is not allowing anymore, Lopez Obrador said, without offering any proof.

“If necessary, I will present a constitutional initiative to affirm this principle: that in energy matters, the interest of the nation will always be predominant,” he said during his daily press conference. “Using the current margins we have, without nationalizing or expropriating, we will rescue Pemex and Comision Federal de Electricidad for the people’s good.”

"Empiezan con el sofisma, con la mentira, algo que es aparente, eso es sofisma, de que nos íbamos a quedar sin luz y que había que abrir el mercado de la energía eléctrica a las empresas particulares", criticó @lopezobrador_ en la 'mañanera'.

— El Financiero TV (@ElFinancieroTv) October 26, 2020

Lopez Obrador’s comments underline growing tension between the president’s nationalistic approach toward the energy industry and private companies that have invested billions since the end of the state monopoly in 2014. In a letter last week, a group of U.S. senators complained that the government’s preferential treatment for its companies “undermine the spirit” of the USMCA trade agreement covering the U.S., Mexico and Canada.

Earlier this year, Mexico tried to block wind and solar power projects in order to limit private competition to the CFE, a move suspended by Mexican courts. The government has also put on hold new oil and natural gas auctions that that opened the sector to private investment in a bid to protect Pemex.

On Saturday, Lopez Obrador said that Mexico has full authority relating to its energy policies. The text of the trade agreement enshrines the nation’s “sovereignty and capacity to change its legal framework, including the Constitution,” according to a statement by Mexico’s Foreign Affairs Ministry.

However, experts say private companies still have legal options in their favor.

In the USMCA, a NAFTA replacement signed in 2018, Mexico committed itself to at least maintaining the level of energy openness that existed before the agreement, and foreign firms can use the deal’s dispute settlement processes to sue the government if it reneges, said Kenneth Smith Ramos, Mexico’s chief technical negotiator for USMCA and a partner at consulting firm AGON.

“Lopez Obrador is classically playing a political card and referring to the sovereignty component which exists, but does not preclude by any stretch of the imagination any of the other legal provisions,” said John Padilla, managing director of consultancy firm IPD Latin America, in a phone interview.

--With assistance from Michael O'Boyle, Eric Martin and Amy Stillman.

© 2020 Bloomberg L.P.


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