The sudden cancellation of a coal-purchasing contract by Mexico’s state-owned Federal Electricity Commission (CFE) came as a bucket of ice water to supplier mining company Micare, a subsidiary of steel mill Altos Hornos de México (AHMSA). The issue, however, is a lot more complicated than just a breach a contract.

The first thought that comes to mind is that the cancellation has a definite political slant. Let’s not forget that AHMSA is owned by Alonso Ancira, who has been called on to answer for a fraud he allegedly committed along with Petróleos Mexicanos (Pemex) former CEO Emilio Lozoya. Both are currently under arrest in Spain awaiting extradition to Mexico.

As it turns out, the coal contract cancellation has nothing to do with their case, other than it leading to Ancira losing a ton of money.

With that supposition out of the way, the contract between CFE and Micare was to supply coal for the operation of two electricity-producing plants located in the town of Nava, Coahuila, through to the end of 2021.

The CFE, headed by controversial politician Manuel Bartlett, however, has plans to convert the plants to burn fuel oil instead of coal, of which there is an abundance ¿in the region, just south of the border at Eagle Pass, Texas, known as the carbon belt.

The idea of shifting from coal to fuel oil began to be tossed around since the oil price crisis earlier this year, which sent Mexico’s heavy crude reeling below the minus 3 dollars per barrel mark. This created several problems for the other state-owned energy giant, Pemex, including the matter of storage and even more so of fuel oil, of which Pemex has an over-abundance.

Also affecting Pemex was the fact that the International Maritime Organization banned the use of high sulphur fuel oil to reduce big-ship contamination. The move, hailed by all global warming buffs, was very bad news for Pemex. What Pemex has, after gasoline refinement, is a heavily sulphur-laden fuel oil, which now has no market.

To the administration of Mexican President Andrés Manuel López Obrador (AMLO), the contract cancellation by the CFE to move to fuel oil made good business sense, since Pemex will now be a supplier to these and other electricity-producing plants around the nation.

The move to fuel oil, besides presenting technical problems for the now-old electrical plants, is seen as “a mortal blow” for the coal region. For starters, company Micare has to lay off 2,400 workers and 400 more working at its Eagle Pass plant.

Coahuila Senator Armando Guadiana said: “There must be a quick solution because this cancellation affects the entire coal region, which already faces a difficult economic problem and which will soon become unsustainable. The solution for thousands of families who are losing their jobs must come quickly.”

The group of eight state governors who met in Dolores Hidalgo, Guanajuato, recently began moving legislation to tax CFE plants that use fuel oil. In 2019, the Supreme Court approved a law to have contaminating industries pay states an added tax. The governors said that in the eight states there are 178 industries that use fuel oil and the privately owned companies are already paying the clean air tax.

AMLO responded quickly to the allegation made by the governors , claiming that it does not have a solid legal foundation, but that remains to be seen.

Tamaulipas Governor Francisco García Cabeza de Vaca already sent a bill to his state congress for approval on this issue. Other states that may be following suit are Coahuila, Durango, Michoacán, Colima, Jalisco, Guanajuato and Nuevo León. They are expected to pass legislation to slap the CFE with a new tax for contamination. All the governors have declared themselves against AMLO,  as most stem from different political parties.

That is where things currently stand regarding the contract cancellation by the CFE. What else will happen as a result we will know in a matter of time, and we will see how AMLO reacts to squash, or not, this open rebellion.

…June 23, 2020

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