Failed Arbitration with Canada Cost CFE $85 Million

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Mexico’s state-owned Federal Electricity Commission (CFE) lost an international arbitration case last year against Canada’s ATCO Ltd and had to pay compensation of more than $85 million, according to three people familiar with the matter.

Although the case involved the construction of a gas pipeline that had been contracted by the previous administration, it shows the type of compensation that Mexico might have to pay in disputes in which the current government is involved regarding controversial measures to strengthen state control of the Mexican energy market.

The London Court of International Arbitration made the award in ATCO’s favor in October 2021, the sources said.

After legal fees and interest were added, the sum amounted to more than $100 million, which the CFE paid to ATCO in December of last year.

ATCO would not comment on the matter because its contractual relations with the CFE are confidential, a company spokesman said, adding that it remained committed to seeking low-emission and efficient energy solutions in Mexico.

The court also declined to comment and CFE did not respond to requests for comment.

ATCO sought arbitration because, after Mexican President Andrés Manuel López Obrador (AMLO) took office in 2018, the CFE canceled a contract signed with the firm during the last administration to build a gas pipeline near the central city of Tula, Hidalgo.

At the time, ATCO had already completed the construction of most of the 17-kilometre Ramal Tula gas pipeline, which was to supply a power plant.

However, the company said it could not finish the final stretch of the pipeline due to resistance from local communities, so it invoked force majeure.

The Canadian company argued that Mexico had not done enough to allow it to complete the pipeline and the court agreed with it, the sources said.

The project had been initially estimated by Mexico as an investment of $66 million when it was awarded in 2014.

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