Mexico: Consequences of a possible energy monopoly

After a failed energy reform by the Institutional Revolutionary Party (PRI), the energy company, the Federal Electricity Commission (CFE) is in a serious economic situation; The mission of the president (Andrés Manuel López Obrador) is to rescue Mexico's energy sovereignty, but what implications does this have for the country?

At the beginning of the regular period of sessions, López Obrador made use of the constitutional power to present a preferential initiative Congress of the Union of Mexico-country; the foregoing, despite having promised that he would never use this legal mechanism to make way for his legislative agenda.

Although it is correct to change your opinion regarding the use of its powers, the news that generates the most controversy is the content of the initiative itself, since with this amendment to the Electricity Industry Law, the destruction of what is It was the Energy Reform of former President Enrique Peña Nieto, and it opens the way to re-monopolize the Federal Electricity Commission of the country.

What is the objective of the initiative?

As drafted in the legal document, the objectives of this reform are benevolent for energy security in the country; however, from a critical perspective, what is really sought with this modification of the law is:

• Strengthen the Federal Electricity Commission (CFE), since, through the agreements of the Federal Executive Power, it was not possible to obtain the surpluses expected from this energy company.
• Change the order of priority in the electricity industry law, putting hydroelectric plants first, CFE power plants second, wind and solar energy third, leaving private generating companies last. of energy.
• End the subsidies that allowed private companies to benefit from the CFE infrastructure; Likewise, the CFE's obligation to buy the supplier of basic services through auctions is removed.
• Review and revoke self-supply contracts of independent energy producers that the federal government does not consider appropriate for the benefit of the CFE.

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Possible consequences of this reform

Economic: If this reform is carried out, there would be economic implications, since by prioritizing the dispatch of energy from hydroelectric plants and other CFE plants, there is a risk that in the short and medium-term the cost of electricity will increase by the final consumer since at present the priority is merit and productivity. In addition to this, since clean energy generating companies are the main affected in this sector, there is a risk of negative impacts on the country's perception of reliability, increasing the risk of investing in the country and delaying Mexico's economic recovery.

Electoral: Likewise, the increase in electricity prices will generate discontent among the population, as it will pay more to the deteriorated image of the CFE, and this impact may be reflected in the electoral preferences of society; It is worth mentioning that this year Mexico is on the threshold of one of the largest elections in history, and the ruling party could lose its absolute majority in the Chamber of Deputies.

Environment: Clean energy generation companies will have few incentives to invest in Mexico, which could generate long-term consequences since the use of energy generating plants that mainly use coal would increase. This is despite the fact that the reform intends to give priority to the generation of electricity through hydroelectric plants, but as is known since the beginning of this government, the CFE's coal plants have been reactivated at levels not previously observed.

Legal: Actions of unconstitutionality are foreseen because it will be interpreted that the Federal Government intends to turn the CFE into a state monopoly that makes the generation of an electric power market impossible. That said, there will be more pressure on the Federal Economic Competition Commission, given that a political environment is looming where the objective is to gradually eliminate autonomous bodies.

In Foreign Policy: Due to the fact that there is a new government in the United States, which is Mexico's main commercial partner, a tense diplomatic environment is expected, since this reform of the law goes against the policies in favor of the environment of Joe Biden and fails to comply with the provisions agreed in the Free Trade Agreement between Mexico, the United States and Canada.