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

Mexico City (AP) — The Mexican Parliament will vote for a constitutional amendment promoted by President Andres Manuel Lopez Obrador, which will cancel much of the electricity market opening that his predecessor made. It is unclear if Lopez Obrador has a vote to drive reform. However, the United States and other countries have expressed concern that the move could affect foreign investors and violate trade agreements.

Why did Mexico invite foreign companies?

Prior to the 2013 energy reform, Mexico faced several problems. Due to high electricity prices, insufficient power generation capacity, and dirty power plants, fuel oil was often burned to generate electricity. Therefore, the government will build a pipeline to import cleaner US natural gas, allow companies to purchase power from independent generators, and give foreign and private companies cleaner wind turbines or gas-fired power plants. Gave an incentive to set up.

Why is the Mexican President trying to revoke the reforms?

Mexico may have given too many incentives to private and foreign companies. They received incentives in pricing and purchases and did not have to pay the federal power commission, a state-owned utility, to distribute electricity over government-owned transmission lines.

The state-owned utility lost market share and revenue, but still had to maintain transmission lines. To make matters worse, when some government agencies were idle, fuel oil (a dirty by-product of Mexico’s outdated oil refineries) began to accumulate and had no storage space.

What are the current reforms aimed at?

Lopez Obrador likes state-owned enterprises and does not want the Federal Power Commission to go bankrupt or lose market share. So he proposed to guarantee the Commission a market share of at least 54% of the electricity market, and private companies were given “46%”. The committee is prioritized and first purchases electricity from its power plant. Cleaner energy from private generators is in the last row.

For example, this reform gives private-sector natural gas power plants the right to sell electricity to the grid, even though it produces electricity about 24% cheaper.

What are your disagreements with the proposal?

Private companies, primarily Spain and the United States, have invested billions of dollars in Mexico to build wind, solar and gas-fired power plants under the terms of the 2013 reforms. Now, suddenly, the government wants to change those rules.

Also, companies with factories, factories and stores in Mexico often have long-term power supply contracts with private generators because of the amount of energy costs and the need to plan for energy greening. These contracts may now be declared illegal.

Mexican law requires free competition in the power industry. The United States-Mexico-Canada Free Trade Agreement (USMCA) also prohibits member states from passing legislation in favor of domestic producers or state-owned enterprises.

What is going to happen?

Many proceedings and perhaps trade disputes. Critics say reforms will undermine investors and their confidence in Mexico. Both companies are likely to apply for a court injunction, and the US government may file a USMCA complaint, which could result in compensation tariffs on Mexican products.

Lopez Obrador has already passed a law that gives state utilities more discretion in deciding who to buy electricity, but has been stalled by court opposition. The president may not be able to obtain the two-thirds of the parliamentary majority needed to pass the constitutional amendment he seeks.

Critics say the reforms could force Mexicans, and US retailers and car companies working in Mexico, to buy more expensive and dirty electricity.

Is electricity only affected?

no. López Obrador also included a clause declaring lithium, a key component of batteries in electric vehicles and other devices, a strategic mineral that only the government could mine. A Chinese company has invested in an unopened Mexican mine. Even if the electrical reforms fail, Lopez Obrador has vowed to send another bill to Congress on the lithium issue separately.