Constitutional Amendments in Mexico to Prioritize State Electricity Firm

Mexico's Senate recently approved constitutional amendments that prioritize the state electricity firm, Comision Federal de Electricidad (CFE), over other companies in the dispatch of electricity. The amendment was passed with 86 votes in favor and 39 against, meeting the two-thirds majority required for constitutional changes.

Continuation of Policies Favoring State Energy Majors

The new President of Mexico, Claudia Sheinbaum, continues the policies of her predecessor, Andres Manuel Lopez Obrador, which support and favor the state energy majors. These include the oil firm Pemex and the state-owned power company, CFE. The amendments favoring CFE will become effective after they pass a majority of state legislatures and are published in the official gazette.

Changes in Electricity Prioritization

According to the new amendments, the national grid operator, Cenace, will be obligated to prioritize electricity from power plants owned and operated by the state company CFE. This will be irrespective of the price, even if the electricity generated by CFE is more expensive than that produced by private power producers.

Increased Presidential Control over Pemex and CFE

In addition to these changes, the new Mexican Parliament is also moving to give the president more control over Pemex and CFE. Despite the reclassification that would increase government influence in Pemex operations, the new government supports the company's collaboration with private companies to develop the country's oil and gas resources.

Current Oil Production and Underinvestment Issues

At present, Mexico produces approximately 1.5 million barrels of oil per day, a significant decline from the peak of 3.4 million barrels per day around 20 years ago. The industry has been plagued by underinvestment for years, which led to the Pena Nieto administration's reforms that invited foreign players into the local industry. However, when former president Lopez Obrador assumed power, he abolished the reform and initiated reviews of existing contracts with foreign entities due to corruption allegations. Consequently, Pemex has not been able to increase oil production as planned by the government, with production dipping below 1.5 million barrels per day in August, according to the latest data available.

Bottom Line

The recent constitutional amendments in Mexico signal a shift towards prioritizing state-owned firms in the energy sector. While this move might strengthen the government's control over the industry, it also raises questions about the impact on private companies and the overall competitiveness of the energy market. What are your thoughts on these developments? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, available every day at 6pm.