Signs of Compromise Emerge Over Controversial Electricity Bill in Mexico

Timid signs of progress are emerging in talks between the private sector and the Mexican government to forge a compromise on President Andrés Manuel López Obrador’s controversial plan to tighten state control in the power sector.

Mexico’s desire to avoid any conflict with the United States in the North American trade pact has increased pressure to reach an agreement and the private sector has recently pointed out that some of the government’s concerns about the electricity market are reasonable.

At the same time, business leaders have been encouraged by the involvement of one of López Obrador’s most trusted aides in the process, which could help open a path toward consensus.

“I am seeing a shift toward pragmatization, toward making practical decisions,” said Enoch Castellanos, head of the industrialists’ association Canacintra.

However, Castellanos and others familiar with discussions on electricity reform say the two sides remain a long way from reaching an agreement. The president’s office did not respond to a request for comment.

López Obrador, a left-wing nationalist, argues that it is imperative to change the law because previous governments skewed the electricity market in favor of private capital, weakening the state electricity company, the Federal Electricity Commission (CFE), and leaving the population at the mercy of business interests.

To prevent CFE from being harmed by excess capacity, business groups have indicated they are willing to discuss changing the provisions governing self-supply permits, which allow companies to generate their own power.

They have also indicated that they are willing to increase the transmission fees paid by private renewable energy providers to relieve pressure on the CFE.

Such changes could give the president political victories in his reorganization of the market, even as negotiators seek other changes to avoid breaching the Canada-Mexico-U.S. Trade Agreement (TMEC), according to people familiar with the talks.

Business lobby groups are encouraged by the role they say Interior Secretary Adán Augusto López, a close ally of the president, has taken on in the behind-the-scenes talks.

“He is a man with great political ability and I think that is a good sign,” said Ildefonso Guajardo, an opposition lawmaker who was one of the architects of the TMEC when he served as Mexico’s economy secretary in the government that preceded that of López Obrador.

Representatives of the business sector consider that Adán Augusto is more likely to help achieve an agreement on the bill than Energy Secretary Rocío Nahle or CFE director Manuel Bartlett, who have strongly defended the original project.

The Interior Ministry did not respond to a request for comment. Neither did Energy nor the CFE.

United States pressure

The president’s proposal to give the CFE priority over private companies has alarmed Mexico’s diplomatic allies.

The US climate envoy, John Kerry, said last week that he had asked López Obrador to ensure that the bill does not violate the TMEC, prompting the president to insist that the pact would not be affected. “We are not going to fight with the United States government,” López Obrador said.

Officials say the president is adamant that the trade pact will not be breached.

However, to avoid this, the legislation will have to eliminate several provisions that restrict investor rights, said Kenneth Smith, one of the Mexican officials who negotiated the TMEC between 2017 and 2018 in the previous administration.

Otherwise, the reform, if approved as is, could trigger lawsuits by investors and compensation claims under international dispute panels, burdening Mexico with heavy damages, Smith said.

“Mexico is in a very weak condition if it enters into a dispute resolution of this nature,” he said.

Despite signs of nascent common ground, there has been no firm indication of compromises the government might make, and business leaders say they believe the president is determined to pass constitutional change.

For this, a two-thirds majority is needed in Congress and López Obrador has made public proposals to the Institutional Revolutionary Party (PRI), Guajardo’s, to get the votes. The president’s Morena party and his main allies are a long way from the two-thirds majority in Congress.

But it was the PRI that pushed for the liberalization of the electricity sector in 2013. Guajardo said he did not believe the party supports a bill that hampers Mexico’s industrial competitiveness by discouraging investment in clean energy.

That, Guajardo said, was the problem with the president’s proposal. He was skeptical that a revised energy bill would come to a vote before the current session of Congress concludes at the end of April or even before elections for new governors in June.