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CFE to Renegotiate $80 Billion Pipeline Debt


Photo: IEnova

By RICARDO CASTILLO    

The tip of the iceberg appeared last April in the form of three outages in the Yucatan Peninsula, each affecting approximately 1.6 million electricity users. Back then, the Mexican state-owned company Federal Electricity Commission (CFE) blamed the blackouts on rural cane field fires and line failures.

The rest of the iceberg emerged last month, and the truth behind the outages came out. The real reason the lights went out in the Yucatan, the CFE admitted, was a severe shortage of natural gas used to propel the electricity-generating plants. A state of emergency due to gas shortages was declared on June 17. It was back then also that the CFE announced natural gas shortages affecting the Yucatan Peninsula, just as the hot and humid summer was about to start.

The Yucatan outages, however, were just the prelude to a problem that burst into the open on Monday, July 1, in which a major rift broke out between the CFE and duct construction company IEnova. As a result, IEnova filed four suits in London and one in Paris against the CFE for breach of contract.

CFE Director Manuel Bartlett Díaz immediately reacted by filing “mirror counter-suits.” When he took over the management of the nation’s electricity under the administration of Mexican President Andrés Manuel López Obrador (AMLO), he announced that the CFE had filed a request for arbitration against five gas duct construction companies, namely IEnova, owned by Sempra Energy and Canadian Trans-Canada Energy (TC), as well as to Swiss Partners Group-owned Fermaca and Mexican company Grupo Carso, whose majority shareholder is local tycoon Carlos Slim.

Thus far, the companies have agreed to discuss the contracts. In fact, on Monday, July 1, CFE spokesman Luis Bravo announced that talks had begun with Fermaca “to agree on the negotiating process.” Discussions will be carried out in tandem with proceedings already underway at the London Court of International Arbitration.

Also on Tuesday, July 2, during a press conference, Bartlett Díaz accused the companies of having gotten “leonine” contracts with former Mexican President Enrique Peña Nieto, adding that those contracts were corrupt.

Lobbying reactions from different sources came swiftly. One of them came from Canada Ambassador to Mexico Pierre Alarie, who, defending the interests of IEnova and TC Energy, said that the arbitration moves made by Bartlett Díaz to not comply with the agreement for the construction of the over 500-mile-long South Texas Marine Gas Pipeline that stretches over the coastal Gulf of Mexico from Brownsville, Texas, to Tuxpam, Veracruz, were a breach of contract. Alarie, in a separate press conference, expressed his “deep concern” over the fact that Mexico “is not respecting pipeline contracts.”

Also jumping into the fray was the U.S. Chamber of Commerce (not to be confused with the American Chamber in Mexico, or AmCham), which politicized the issue, claiming that the arbitration requests made by the CFE “sends a negative message to U.S. investors over the business climate between Mexico and the United States.” The U.S. Chamber requested Mexico withdrawal its decision.

On Tuesday, July 2, AMLO met at the National Palace with also-worried business leaders Carlos Salazar Lomelí of the Business Coordinating Council (CCE) and Antonio del Valle of the Mexican Businessmen Council (CMN), both of whom queried the president over Mexico’s stance on the arbitration decision.

AMLO’s answer to the plaintiffs was that amiable talks would be held with all the pipeline construction companies  – there are several on the agenda for next week. “I’ve instructed the CFE director to follow the path of dialogue,” he said.

But the next day, during his daily early morning press conference, AMLO changed the tune of his stance, saying that the CFE “is on the hook until 2043” with these companies.

“In effect, we’re dealing with contracts worth over $80 billion dollars,” he said, “and we are aware that the way these contracts were subscribed to is through very high interest rates. That gas is to be used to generate electricity, and indeed the rates are very high. Paying those rates would lead to rate hikes. These are no (politically speaking) small-fry deals. They are something that requires special treatment, and I hope we can come to an agreement.”

Then, AMLO capped his statement by adding that, in case the individual negotiations with each of the contractors fail, the CFE would continue on its path with the London Court for International Arbitration proceedings.

The CCE and CMN presidents Salazar and Del Valle showed concern over ensuing gas shortages, which would affect practically all industries in Mexico, given the monopoly nature of the CFE.

AMLO answered their concerns, saying: “There will be no shortages of gas, gasoline or diesel. None of that. That’s solved. It does not behoove you to be claiming that we are going to run out of gas because there are many other ways of getting the needed supplies.”

The main concern of the business leaders was really over the already-finished-but-idle Brownsville-Tuxpam pipeline, which would increase Mexico’s gas supply by over 40 percent. They left the National Palace claiming to sidewalk reporters that what is important is that a solution is in the making.

“All I’m asking for,” AMLO said, “is for the companies to charge us fair prices. That does not mean they can’t make a profit. It’s business.”

Bartlett Días also said during his July 2 press conference: “We are going to renegotiate these contracts. We have talked to the companies, which have idled pipelines, and they have accepted to do it.”

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Categories: diplomacy, Embassies, Mexican politics, Mexico, Opinion, PoliticsTags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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