Mexican President Andrés Manuel López Obrador. Photo: presidencia.gob.mx

By KELIN DILLON

Following the approval of Mexican President Andrés Manuel López Obrador’s (AMLO) controversial electricity reform bill, López Obrador said Mexico would be rewriting existing contracts with electrical companies “to update them to the new reality.” 

The bill gives Mexico’s state-owned Petróleos Mexicanos (Pemex) priority uploading of energy the also-state-owned Federal Electricity Commission (CFE) power grid, above private companies, regardless of cost and cleanliness. 

Prior to the bill’s passage, experts warned that the reform could violate agreements with Mexico’s trade partners, such as the United States, Canada and Spain, and might also discourage foreign investment into the country and damage the environment due to its prioritization of “dirty” energy.

Despite vocal opposition, AMLO’s reform passed through the Senate on Tuesday, March 2, and reached full approval later that night “without even changing a comma,” as López Obrador had requested.

Now, with the bill as law, AMLO is setting his sights on renegotiating the terms of Mexico’s already-existing energy contracts.

“The management of the electricity market is well concentrated,” AMLO said during his daily press conference on the morning of Wednesday, March 3. “So we are going to seek agreements based on this logic that we want to continue maintaining contracts, but we have to update them to the new reality.”

López Obrador announced his intention to renegotiate contracts with Spanish electric company Iberdola and 10 other companies, following his calculations that the CFE is paying more than 300 billion pesos in total for these contracts.

Pemex CEO Octavio Romero announced the same day that the company had renegotiated its contract with Brazilian firm Braskem Idesa, which supposedly saves the Mexican fuel company 13.75 billion pesos annually, or $661 million.

The new deal will force the Brazilian company to pay the complete cost of transporting ethane, and Mexico will cease supplying ethane to it in 2024.

Pemex committed to providing Braskem Idesa with 30,000 barrels of ethane gas daily until the termination of the contract. The negotiations also removed any penalties for Pemex failing to complete its end of the bargain.

AMLO noted he had already attempted to renegotiate with Iberdrola to no avail, which led to his creation of the new reform, which now gives legal grounds to the contract’s renegotiation.

“There was no response (from Iberdrola) and that led me to present the initiative to modify the Electricity Industry Law so that we have a legal framework and can be in a better condition,” said López Obrador.

“We have heard concerns from the private sector,” said U.S. Deputy Assistant Secretary of State Jon Piechowski when asked about Mexico’s new reform. “And at the same time, we respect the sovereignty of Mexico and the process it is going through right now.”

“There must be transparency for private investors in the energy sector, even when we respect the sovereignty of Mexico and its sovereign rights to enact laws,” continued Piechowski.

…March 4, 2021

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