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Gas Supply for CFE and Mexican Industry Assured


Photo: Solico

By RICARDO CASTILLO    

There’s an old Mexican adage that says that it is cheaper to make a poor deal than to fight a great fight.

This might seem to be exactly what happened in the negotiations headed by Mexico’s Federal Electricity Commission (CFE) Director Manuel Bartlett Díaz and seven gas pipeline companies that signed contracts for gas ducts with the CFE, as announced on Tuesday, Aug. 27.

Coming up with an arrangement with three out of four pipeline construction companies to fizzle out the possibility of having costly and very long suits became a mandatory deal for Mexican President Andrés Manuel López Obrador (AMLO), who on Sunday, Sept. 1, will be presenting his first State of the Nation Address. Surely, the gas fix will be among the successes announced.

But since last February, Bartlett Díaz warned AMLO that the contracts signed by the four companies, including seven gas pipelines, had been “leonine” in cost. They were all signed under former Mexican President Enrique Peña Nieto’s “Energy Reform” and allegedly were full of corrupt practices – including kickbacks to CFE negotiators. Worse yet, the ducts, which were financed by the CFE, would have ended up being owned by the companies.

(For further background, check my July 18 article “Pemex and the CFE in Eye of a Political Hurricane” in Pulse News Mexico.)

Hearsay has it that even as late as Sunday, Aug. 26, Bartlett was haggling with the companies at the same time that he was filing suits at the London Court of International Trade, but was finally dissuaded by AMLO, who by now it is clear has opted to stay out of the danger path and settle all old debts, which after all, are not from his tenure.

The announcement of the fix at the National Palace looked like a court parade, featuring Mexico’s top tycoon Carlos Slim, whose Carso Energy was one of the companies in conflict with Bartlett’s CFE. Also joining the settlement newscast was the president of the Business Coordination Council, Carlos Salazar Lomelí, and Antonio del Vale Perochena, head of the Mexican Business Council.

AMLO said: “It is very important to recognize Carlos Slim here, who was the first to reach an agreement with the CFE. This set the pace to achieve agreements and the companies acted with great responsibility.”

With this agreement – the one pending is supposed to be announced on Wednesday, Aug. 27, or later this week – AMLO said that the administration is saving $4.5 billion, thus lowering gas transportation charges, and that CFE “guarantees electricity supply so that we don’t have outages for many years, thus fostering national industry. We will be gas sufficient in Mexico for the next 20 years.”

Also, for the home use of electricity, there will be no price hikes for the years to come.

But despite Bartlett’s willingness to continue fighting the pipeline construction companies, he said that the agreement that he’d come to was “reasonable, definitive and equitable,” but not easily forged since it only happened after 19 business negotiations meetings with companies Carso Energy, TransCanada Energy and IEnova, all of which agreed to lower their gas carrying rates by 28 percent and, in some specific cases, given high volume, by as much as 38 percent. All sides agreed to forego any legal action in courts.

The company that is still negotiating is Farmaca, which Bartlett Díaz expects to fall into line “just the way it happened with the other three companies,” and to come up with a similar agreement.

Beside the stiff pressure that came from the international ratings companies over the health of the CFE,  AMLO is said to have received “advise” from the Trade Subcommittee of the Ways and Means Committee of the U.S. House of Representatives, and also directly from Secretary of State Mike Pompeo in his last meeting with Foreign Relations Secretary Marcelo Ebrard. AMLO also received a letter from Texas Governor Greg Abbott – Texas is Mexico’s main gas supplier – as well advising him to avoid resorting to the London Court of International Arbitration.

A key turning point for reaching an agreement came when AMLO was advised by his legal counselors that since the contracts had already been signed – some as far back as 2014 – the chances of winning at the London Court of International Arbitration were slim, if none at all.

Apparently, for a while Bartlett Díaz sought to cancel out the contracts, very much in tune with the socialist ideology of his political Labor Party, but in the end, AMLO had the last word and he said it publicly on Tuesday, Aug. 27:

“There will be no expropriations of private companies during this administration.”

And as a result, AMLO announced that the newest of the pipelines and definitely the most ambitious, the Texas-Tuxpan gas line, will start very soon. It will come as no surprise if that happens Sunday, during AMLO’s State of the Nation Address.

 

 

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Categories: Mexico, Opinion, PoliticsTags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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