The American Chamber of Commerce in Mexico (Amcham) said Friday, Feb. 5, that President Andrés Manuel López Obrador’s (AMLO) proposed electricity reform bill “represents a giant step backwards for the sector’s ability to compete, the nation’s state of law and sustainable development for the country.”

In a written statement, the business organization pointed out that the initiative proposed by AMLO and sent to the Congress last week to be rubberstamped — a bill that would restrict private firms from supplying energy to the state-run Federal Electricity Commission (CFE) —  blatantly violates Mexico’s legal commitments established in the United States-Mexico-Canada Agreement (USMCA) by not recognizing or respecting the legal rights of existing corporate contracts currently applicable under Mexican law.

The trilateral USMCA took effect in July, replacing the 1994 North American Free Trade Agreement (NAFTA) with updates in environmental and labor regulations.

Amcham, which represents 20 percent of all private investment in Mexico and accounts for 21 percent of the country’s total GDP, also warned that the president’s proposed bill “opens the door” for an energy monopoly.

The bill represents the latest in a series of steps by AMLO to strengthen the state’s role in the energy sector by giving preference in electricity distribution to CFE and seeking to eliminate the government’s obligation to buy electricity through auctions.

“The bill gives preference to a state entity above its private competitors and violates the concept of free competition,” the Amcham statement said.

Also, the chamber said, by eliminating open tenders on CFE supply contracts, on which private-sector companies might otherwise wish to place bids, the government would be negatively impacting the environment by favoring state-owned suppliers that are both “more contaminating and more costly.”

By the same token, Amcham said, forcing the Energy Regulatory Commission (CRE) to revoke legal permits to allow companies to supply their own energy sources would “unilaterally alter” the rights of companies that have already been granted such permits.

“This is a clear violation of the principle of non-retroactivity of the law,” the Amcham statement said.

The U.S. Chamber of Commerce in Washington also slammed AMLO’s electricity bill, calling it “deeply troubling” and stating that it represents a breach of the country’s commitments under the USMCA.

U.S. Chamber Senior Vice President of the Americas Neil Herrington said that the planned legislation will undermine foreign investor confidence as Mexico is struggling to emerge from its worst economic contraction since the Great Depression.

“Such drastic changes would open the door for the reinstatement of a monopoly in the electricity sector,” Herrington said flatly, adding that they are “tantamount to indirect expropriation.”

“The American Chamber of Commerce in Mexico calls on the legislators of both houses to reflex carefully (on the bill) in order to guide the nation’s energy policy with a focus on clarity, certainty, free competition and respect for the country’s international commitments.”

The Amcham statement concluded its statement by calling on the Mexican government to withdraw it proposed electricity reform since its implementation would create a state-run monopoly and violate the terms of the USMCA.