Long-simmering tensions between government and business interests escalate in the run-up to the country’s biggest ever midterm elections.
Business groups are once again in a lather about the reform agenda of Mexican President Andres Manuel Lopez Obrador, or AMLO as he’s often referred to. The latest bone of contention is his wide-ranging plans to overhaul Mexico’s energy sectors. The energy reforms will enhance the powers of energy ministry Sener and regulatory commission CRE to review and cancel midstream and downstream permits. They will also expand the role of national oil company Pemex and state-owned electricity utility CFE (Federal Electricity Commission).
The EU’s Ambassador to Mexico, Gautier Mignot, recently described the reforms as a major source of worry to the European companies that “have invested and taken risks in the country.” Mary Ng, trade minister in the cabinet of Justin Trudeau — he of the Trans Mountain pipeline expansion — declared that Canada was “increasingly concerned about the investment climate in Mexico” in light of the energy bill.
The ultimate goal of AMLO’s reforms is to roll back some of the sweeping energy reforms unleashed by AMLO’s predecessor Enrique Peña Nieto seven years ago. Those reforms opened up Mexico’s long-protected oil and gas sectors to global competition and expertise. They were supposed to lead to lower energy prices for domestic consumers as well as thrust Mexico into a more prominent position in the global hydrocarbons market. Instead, the opposite happened: prices of gas, diesel, natural gas and electricity soared. And rather than reversing Pemex’s decline, the reforms sharply accelerated it.
As Jacobin Magazine reports, many of Pemex and CFE’s global competitors did very nicely out of the new set up:
The CFE has calculated that, taking into account subsidies, inflation, exchange-rate fluctuations, irregular supply, and rate increases, the opening of the energy market to private suppliers has cost the nation some $412 billion pesos (US$20 billion). Of this, $56 billion pesos are to have gone to one project alone, the La Venta wind farm in the state of Oaxaca, operated by Spanish energy giant, Iberdrola.
La Venta is one of some thirty-odd wind projects in the Isthmus of Tehuantepec, all but a handful owned by foreign multinationals, which have become notorious for predatory contracts, unpaid taxes, a failure to properly consult with local populations, and miserly profit-sharing agreements of one percent minus costs, a quarter of what is paid abroad. And instead of benefiting the impoverished Huave, Mixe, Zapotec, and Chontal indigenous groups that live clustered around the parks, the subsidized energy goes to feed corporate clients such as FEMSA, Mitsubishi, Gamesa, and the Bimbo Group, which can then boast of their commitment to renewable energy in glossy brochures and at shareholder meetings.
The AMLO administration wants to rewrite some of the rules of the game while also strengthening Mexico’s energy independence. To reduce the country’s reliance on gasoline imports from the US it has poured billions into building new refineries and upgrading old ones. It has also tried to halt the plunder of Pemex by the highly sophisticated gangs of oil thieves — the so-called huachicoleros — that tap the pipelines that crisscross the country as well as the internal plunder being carried out by Pemex’s senior executives and union leaders.
The Electric Industry Act, signed into law by AMLO on March 9 but since blocked by a federal judge, aims to ensure that the national grid acquires its energy first from public (i.e. national) sources and then, as necessary, from private ones. The law will also set a fee structure for customers that can rise no faster than inflation. It also eliminates the obligation for the Federal Electricity Commission (CFE) to purchase from “auctions” of energy — in practice, a massive giveaway to private suppliers that locked in their profits at taxpayer expense.
“No way are we going to favor Iberdrola any more,” AMLO said last October.
AMLO’s attempts to reinvigorate Mexico’s fossil fuel industry has drawn stinging criticism from many quarters. “Nothing can shake AMLO’s fossil-fuel fixation,” squealed the Economist. But much of the criticism is driven by self-serving hypocrisy, as The Jacobin points out:
Never mind the stunning hypocrisy of the industrialized world, which has been responsible for the overwhelming majority of fossil-fuel emissions over the last two hundred years, now lecturing a country like Mexico on curbing its own output. Never mind the fact that Mexico barely produces 1 percent of the world’s fossil-fuel emissions annually, while China and the United States alone account for 43 percent. Never mind the fact that renewable energy makes up a very small fraction of the total energy participation of private companies in Mexico.
Never mind the fact that coal, to give one example, makes up twice the share of energy output of the United States and nearly three times that of Germany, without this triggering corresponding lectures from billionaire philanthropists. Never mind that the energy-reform law gives priority to cleaner sources of energy. For this predictable scrum of commentators and bad-faith political actors, what is essential is that Mexico open the door to its grid to any and all, together with subsidies, guaranteed profits, and the ability to cherry-pick prime corporate clients, leaving the Federal Energy Commission to hold the bag. If not, the club of weaponized environmentalism will be ready and waiting.
Lost in the morass of self-serving argumentation, moreover, is the potential for a more sober analysis of where Mexico is headed with renewable energy. This would include areas where the nation is making advances: as Energy Secretary Rocío Nahle points out, Mexico already has the installed capacity to produce 31 percent of its energy through public renewable sources, were they allowed to be put fully into use.
For the moment AMLO’s energy reforms have been held up by the courts. But in two months’ time AMLO could further strengthen his grip on political power in Mexico, assuming Morena, the political movement he leads, wins majorities in the Congress and the Senate. If recent polls are any indication, that is likely to happen.
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