Photo: Total energies

By THE PULSE NEWS MEXICO STAFF

Mexican President Andrés Manuel López Obrador’s (AMLO) proposed electricity reform would nullify at least 32 existing contracts with private electricity generators, especially those of independent energy producers, which, according to data from Federal Electricity Commission (CFE), are valued at 1.6 trillion pesos.

To put that in context, that sum would constitute enough money to finance the remaining three years of AMLO’s entire six-year term plus two more decades.

Consequently, canceling the independent contract model, “the commitment to buy electricity from them under the terms signed in past administrations, fixed and variable prices and charges that were established in purchase-sale contracts” would laden the CFE with an impossible financial burden, according to independent sources from the energy sector.

If the reform is approved, they said, “these generators will be able to participate in the generation of up to 46 percent of national consumption, subject to the planning and control of the National Electricity System (SEN) through CFE, but only through a mechanism based controlled by the CFE.”

AMLO’s electricity reform would also increase the price of electricity for consumers and lead to energy blackouts and shortages nationwide.

Gonzalo Monroy, energy sector consultant and CEO of GMEC, said that the federal government is moving ahead with the reform without considering independent producers, “in the spirit of not negotiating anything,” but that the AMLO administration “will eventually have to face the consequences of the changes to the law proposed in the initiative.”

“The first contracts signed with independent generators, between 1997 and 2004, considered changes in the law that allowed renegotiation without capacity charges, just for the energy delivered and those should not be a problem,” Monroy said.

“But with the second and third generation independent contracts, signed after those dates, the contracts do not include changes in the law and indicate that in case of early termination by the CFE, the state company is required to buy the remaining value of the plants, plus their output, and that is where there is a financial timebomb that is going to be very difficult to defuse and that is where the government has to pay compensation, no matter what.”

Currently, Mexico’s existing independent producers have committed annual goals of 12,653.7 megawatts that they must deliver to the CFE.

According to the state company, there are payment commitments with these generators for the purchase of electricity of 269.2 billion pesos between 2022 and 2024, which will have to be renegotiated.

The producers would subtract commitments for the purchase of electricity between 2025 and the next 10, 15, 20 and up to 25 years, according to the dates of the signing of contracts for 1.49 trillion pesos.

Since October 2020, the government has been looking to renegotiate these contracts.

When appearing before the Senate on Oct. 27 of last year, CFE Director Manuel Bartlett Díaz warned that he intended to “renegotiate the contracts that regulate the purchase of electricity by private parties and those that establish the transmission of electricity from individuals, since they are disadvantageous for the interests of the state.”

However, that negotiation process never took place, so the government has resorted instead to a constitutional reform of the electricity sector that would in effect absolve it of those financial commitments, Monroy said.

Within the independent scheme, Spain’s Iberdrola is the largest private electricity generator in Mexico.

By 2022, according to the payment schedule of the Federation’s Expenditure Budget project, the CFE must pay Iberdrola 12.4 billion pesos for energy from its seven plants in Mexico.

But by 2023, that amount will increase to 30 billion pesos, which is why the AMLO government is so keen to dissolve the independent contract model within its electricity reform.

 

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