Analysis: Mexican power bill seeks legal compromise for bruised investors
09/02/2021 12:00
By Dave Graham
MEXICO CITY, Feb 9 (Reuters) - Mexican President Andres
Manuel Lopez Obrador is gambling he can use a contentious new
bill to cement public sector control of the electricity sector
without inundating his government with more lawsuits from
investors already smarting from his policies.
Corporate lobbies have objected to the bill, which will give
priority in electricity dispatch to national power utility the
Comision Federal de Electricidad (CFE), and eliminate Mexico's
obligation to buy power through auctions.
Mexico's Business Coordinating Council (CCE) called the
shake-up an "indirect expropriation", while the U.S. Chamber of
Commerce said it violated the United States-Mexico-Canada
Agreement (USMCA) trade deal.
The proposal to put the CFE, a heavy consumer of fossil
fuels, ahead of private wind and solar plants, also caused
consternation among advocates of renewable energy in Mexico.
Legal experts say the administration will lower the risk of
lawsuits if the fast-tracked bill respects contracts signed
under a 2013-14 constitutional reform enacted by the last
government to open the sector to private capital, even as it
curbs future incentives for companies to invest.
The overhaul will not be retroactive, which will safeguard
existing projects, said Manuel Rodriguez, a member of Lopez
Obrador's National Regeneration Movement (MORENA) who heads the
lower house of energy committee that now has the bill.
"Investments already made in accordance with the rules of
the energy reform are guaranteed, and will continue, there won't
be a change of rules for those investments," he told Reuters.
That point could be stipulated in the transitory articles
attached to the legislation, he said.
Going forward, amended rules would apply to new investors,
such as companies having to cover the cost of back-up energy
rather than piggybacking on the CFE, he noted.
REPUTATION
Lopez Obrador has said his predecessor's energy opening
distorted the market in favor of private firms at the expense of
the CFE and state oil company Petroleos Mexicanos (Pemex).
His government has tried to walk back the reform by holding
up projects and issuing regulations that tied up companies in
litigation, angering the private sector and causing friction
with major trade partners.
Shortly after Lopez Obrador's proposal was unveiled last
week, consultations began between foreign embassies in Mexico
and the private sector, according to diplomatic sources.
Investors believe it could violate Mexico's constitution and
USMCA commitments.
Last week, the Supreme Court threw out provisional
regulations the energy ministry has pushed through to help the
CFE. An actual change in the law would be harder for the court
to overturn, legal experts said.
In his defense, Lopez Obrador has pointed to a chapter in
USMCA recognizing that Mexico has a "sovereign right to reform
its constitution and its domestic legislation." However, it
suggests that any such change should be "without prejudice" to
the "rights and remedies" of the United States and Canada.
If Mexico does not guarantee existing investments, it can
expect a flood of litigation, said Andres Rozental, a former
Mexican deputy foreign minister for North America.
Even assuming all prior investments are guaranteed, Mexico
might still face further legal wrangling.
For instance, under USMCA, if Mexico reduces market access
to its energy sector, the United States and Canada should get
more access to another sector to compensate, said a former trade
official who has advised the private sector and the government.
If not, Mexico could face retaliatory measures equivalent in
value to the loss of market access, said the former official.
Rozental acknowledged USMCA does not oblige Mexico to
continue opening its energy sector, but said the bill gives
investors another reason to feel unwelcome.
"A reputation gets damaged overnight," Rozental said. "A
reputation's rehabilitation takes a lot of time."
(Reporting by Dave Graham; Editing by David Gregorio)
((dave.graham@thomsonreuters.com; +52 55 5282 7146; Reuters
Messaging: dave.graham.thomsonreuters.com@reuters.net))