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Obrador Administration rolling back energy reform in Mexico –

Release time:2019-12-02Viewed:514Source:

Oil and Gas 360 Publisher’s note: Mexico’s importing of U.S. natural gas is going to grow exponentially as the pipelines from the United States come on line in the near future. The bottom line: The current administration wants to control pricing and re-enact the state owned power generation for Mexico. Darrell points out in this article that development of new energy projects would be a fraction of what it would have been had the open market reforms continued.  Our United States politicians should use this as a working model that government intervention into markets is best left to competitive solutions.

Obrador Administration Rolling Back Energy Reform in Mexico -oilandgas360

1. Andrés Manuel López Obrador, who took over as Mexico’s president late in 2018, immediately made moves to roll back energy reforms instituted under the previous administration of Enrique Peña-Nieto. Among his actions was to give more influence to state-owned companies in the country’s energy strategy. Source: Office of the President / Government of Mexico

The future of energy in Mexico is being shaped by the administration of President Andrés Manuel López Obrador, who wants state-owned energy companies to have more influence over the country’s power projects. Obrador (Figure 1), who assumed the presidency late in 2018, in his first year in office has rolled back moves from the previous administration of Enrique Peña-Nieto, who oversaw constitutional reforms in 2013 that ended state-run monopolies and opened Mexico’s energy markets to competition and investment from foreign and private companies.

Obrador’s move to reduce private-sector incentives to develop renewable energy has led to lawsuits from groups that support renewable resources. Some companies have filed what are called “amparo” lawsuits—in effect, a remedy for protection of constitutional rights—to overturn a government decision from October 2019, a move that the groups said alters a scheme promoting private-sector investment in renewable power generation.

The October rule change also brought criticism from the International Monetary Fund (IMF). The groups supporting renewable power won an initial battle in late November, as a Mexican federal court reversed an earlier decision by a lower court on the October rule change, which impacts a program for renewable energy credits. Companies, including U.S.-based AES Corp. and Italy’s Enel SpA, had filed for injunctions in courts across Mexico, pushing back on a decision by Obrador’s Energy Ministry to grant older, government-run renewable power projects clean energy certificates (CELs) that were supposed to spur the development of new wind and solar farms. The CELs—adopted during the previous administration of Peña-Nieto—are sold at auction to large electricity users that are required by the Mexican government to use certain amounts of renewable energy.

Several other injunctions against the rule change were pending in court in early December. Industry groups including the Mexican Association of Wind Energy and the Mexican Association of Solar Energy have said a change to the policy around CELs would disincentivize investment in renewable energy projects, and that could be the goal of the Obrador administration, according to an industry insider who spoke with POWER.

“Mr. Obrador took office just over a year ago, and he immediately put in the freezer a number of steps that were to be taken on energy reform,” Jose Valera, co-lead of Mayer Brown’s Oil & Gas practice based in Houston, Texas, told POWER. “There has been a change in policy that results in the CFE [Comisión Federal de Electricidad or Federal Electricity Commission] playing a much-larger role than anticipated as part of the reform in electric generation. The majority of new generation capacity will be developed by the CFE, and it is unclear if incentives will be provided at all for renewable energy.”

The Peña-Nieto government specifically sought private and foreign investment in Mexico’s power projects, but Obrador’s government has said it wants state-run groups to lead the development of energy policy. Obrador has said the moves by the prior administration disadvantaged CFE (the state-owned utility) and its ability to obtain CELs for old power plants, including renewable projects such as hydro plants, because the rules were not in place when CFE invested in the projects.