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Why is the United States unhappy with Mexico’s electricity law?


MEXICO CITY (AP) — Mexico’s Congress is set to vote on a constitutional reform promoted by President Andrés Manuel López Obrador that would undo much of the opening of the electric power market achieved by his predecessor. It is not known if López Obrador has the votes to pass the reform. But the United States and other countries fear the move could hurt foreign investors and violate trade agreements.

WHY HAS MEXICO INVITED FOREIGN COMPANIES?

Prior to the 2013 energy reform, Mexico faced several problems: high electricity tariffs, limited generation capacity, and polluting power plants that often burned fuel oil to generate electricity. For example, the government built pipelines to import cleaner U.S. natural gas, allowed companies to buy power from independent producers, and incentivized foreign and private companies to install wind turbines or gas-fired power plants. cleaner.

WHY DOES THE MEXICO PRESIDENT WANT TO CANCEL THE REFORM?

Mexico may have given too many incentives to private and foreign companies. They received preferential pricing and purchasing treatment and did not have to pay the utility, the Federal Electric Commission, the cost of distributing electricity through government-owned transmission lines.

The utility lost market share and revenue, but still had to maintain the transmission lines. Worse still, with some government factories inactive, fuel oil – a dirty by-product of Mexico’s antiquated oil refineries – started piling up, until there was no place to store it. .

WHAT IS THE CURRENT REFORM TARGET?

López Obrador likes public companies and does not want the Federal Electricity Commission to go bankrupt or lose more market share. He therefore proposed to guarantee the commission a market share of at least 54% of the electricity market, with private companies obtaining “up to 46%”. The commission would have preference, buying power from its own power plants first, when often cleaner power from private generators would be last in line.

For example, the reform puts private natural gas power plants almost last – ahead of government-only coal power plants – for the right to sell electricity to the grid, despite the fact that they generate electricity. electricity about 24% cheaper.

WHAT ARE THE OBJECTIONS TO THE PROPOSAL?

Private companies, mainly Spanish and American, have invested billions of dollars in Mexico to build wind, solar and gas power plants as part of the 2013 reform. Now, suddenly, the government wants to change these rules.

And companies with factories, factories and stores in Mexico must plan the amount of their energy costs and the degree of energy ecology. They therefore often signed long-term electricity supply contracts with private generators. These contracts could now be declared illegal.

Mexican laws require free competition in the electricity sector. And the United States-Mexico-Canada Free Trade Agreement, or USMCA, prohibits member countries from passing laws that favor domestic producers or state-owned companies.

WHAT IS LIKELY?

Lots of lawsuits and maybe trade disputes. Critics say the reform will hurt investors and their confidence in Mexico. Companies are likely to file court injunctions and the U.S. government could file a complaint with the USMCA, potentially resulting in countervailing tariffs on Mexican products.

López Obrador has already passed a law giving the utility more leeway to decide what electricity to buy, but it remains stymied by legal challenges. The president may not get the two-thirds majority in Congress needed to pass the constitutional reforms he wants.

Critics say the reforms could end up forcing Mexicans — and U.S. retail and auto companies that work in Mexico — to buy more expensive and dirtier electricity.

WILL ONLY THE ELECTRICITY BE AFFECTED?

No. López Obrador also included a clause declaring lithium – a key component of batteries for electric cars and other devices – a strategic mineral that only the government can mine. A Chinese company has invested in an as yet unopened Mexican mine. Even if the electric reforms fail, López Obrador has pledged to separately send another bill on the lithium issue to Congress.

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