Global Energy Giants Breathe Sigh of Relief as Mexico’s Electricity Reform Falls at Final Hurdle

Within hours of the Electricity Reform’s failure, Mexico’s President AMLO had shifted his focus to a new mining law that will nationalize all of Mexico’s lithium deposits. 

After more than 13 hours of intense debate on Easter Sunday, 275 out of 499 deputies voted in favor of Mexican President Andrés Manuel López Obrador’s long-awaited, highly contentious Electricity Reform bill. Yet the bill still failed to pass. Since it required altering the constitution, it needed a two-thirds majority in Mexico’s Chamber of Deputies. It only managed to secure 55% of the votes.

As a result, many of the world’s largest energy companies, in particular the Spanish behemoth Iberdrola, were breathing a sigh of relief on Monday morning. Washington recently claimed that as much as $10 billion of US investments were at risk.

But by Monday evening Lopéz Obrador (AMLO for short) had pivoted the focus of the debate from his failed energy reform bill to a totally different bill that will no doubt have many of the world’s mining conglomerates deeply concerned. It was time, he said, for plan B, which essentially involves fast tracking a mining bill aimed at nationalizing Mexico’s deposits of lithium and other “strategic minerals”.

Unlike constitutional reforms that require a two-thirds majority, amendments to the Mining Law only need a simple majority, which the Morena coalition has comfortably. By the end of the day Mexico’s House of Deputies had voted to nationalize the nation’s lithium stores, with 298 votes in favor, 0 against, 197 abstentions and an opposition walkout. The bill now goes to the Senate, where, as the Jacobin’s Kurt Hackbarth put it, “barring an Elon Musk-funded hit squad, it is certain to pass.”

Big Blow to AMLO

The AMLO government’s failure to pass its constitutional-level electricity reform still represents a big blow to AMLO, for whom the reform was one of the key planks of his so-called “fourth transformation” of Mexico. If the bill had passed, it would have awarded the state-owned Federal Electricity Commission (CFE) control over the production of at least 54% of the nation’s energy supply. The CFE would also have become an autonomous legal entity, no longer hamstrung by the “autonomous” subsidiaries and commissions created in recent decades.

The proposed reform would also have curbed the abuses and excesses of energy companies, most of them foreign owned, that have rigged the system to their advantage. On top of that, it would have granted the State sole exploration and mining rights over lithium and other strategic minerals deemed strategic for the nation’s energy transition. As Hackbarth wrote in Jacobin some months ago, by including these provisions in the bill AMLO “elevated the ongoing scuffle between the public and private energy sectors to the level of a historic battle.”

But that battle was to be waged against some of the world’s largest energy companies, many of which had been awarded juicy deals in the energy privatization reforms of AMLO’s predecessor Enrique Peña Nieto. And those companies have virtually unlimited resources at their disposal.

For a start, they can count on the slavish support of Mexico’s three main establishment parties — the Institutional Revolutionary Party (PRI), which ran Mexico for 70 uninterrupted years and which pushed through Peña Nieto’s energy reforms of 2013; the social democratic PRD party, which is largely a spent force in Mexican politics; and the conservative pro-business National Action Party (PAN) which governed Mexico between 2000 and 2012.

The energy giants also have vast lobbying power at their disposal, including the diplomatic weapons wielded by US and European governments. As I recently reported, the United States government has raised the pressure on Mexico in recent weeks by threatening to take legal action against the country if AMLO’s energy reform is passed. During Sunday’s debate Ildefonso Guajardo, the former secretary of economy who helped to write Peña Nieto’s energy reform bill as well as negotiate the terms of the United States-Mexico-Canada Agreement (USMCA), picked up the baton, warning that AMLO’s energy reform would violate the terms of USMCA

There will be two consequences. First, the traditional investor-state disputes. When we change the rules of the game… investors have the right to take us to international court. This without doubt would hit the Mexican people. Millions of dollars are at stake — over $36 billion according to estimates — and that is going to affect the ability of the Mexican government to serve the needs of the most vulnerable classes.

And the second and more important impact is that an affected State will be able to launch an investor state dispute against us, just as we have done against the US over transport issues. That gives the State in question the right to impose customs duties on our exports — on our cars, our electrical appliances, our avocadoes and tomatoes, affecting the well-paid jobs of Mexican women and men.

Spain has also threatened to retaliate against AMLO’s proposed energy reform. Juan Fernández Trigo, the secretary of state for Ibero-America in the government of Pedro Sánchez, warned that Spain will “react very clearly” against the new law. The US government even proposed setting up a team led by US Ambassador to Mexico Salazar that would work with the White House and to help the AMLO Government tweak its reform efforts, which AMLO roundly rejected the next day.

A New Low for Energy Lobbyists

During a recent plenary session of the Chamber of Deputies on AMLO’s electricity bill, an Italian lobbyist by the name of Paolo Salerno was spotted inside the chamber counselling two deputies, Edna Diaz of PRD and Margarita Zavala, a senior member of PAN and the wife of former President Felipe Calderon, who shortly after leaving office in 2012 joined the board of directors of Avangrid, a subsidiary of the Spanish energy giant Iberdrola.

The fact that energy industry lobbyists now feel emboldened enough to peddle their influence inside the chambers of government represents a fresh low for Mexican politics…

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