Mexico’s state-run power company urged to keep power prices low

“We are urging companies that have agreements with the Federal Electricity Commission (CFE) to come together to review contracts and above all to reach an agreement that electricity prices will not increase,” Lopez Obrador said during his morning press conference.

Lopez Obrador campaigned to strengthen the CFE and avoid energy price hikes. During his press conference, he cited the number of pipeline projects that are incomplete, yet they require payments from CFE. The companies in question include Mexican energy infrastructure firm IEnova, a unit of U.S.-based Sempra Energy; TransCanada Corp; and Mexican tycoon Carlos Slim’s Carso.

IEnova’s shares dropped 6.7 percent, TransCanada’s were down 0.5 percent and Carso slipped 0.21 percent after the comments. Reuters is reporting that IEnova issued a statement this morning saying it does have one pipeline that entered into operation in 2017, but gas supplies to CFE were interrupted due to “sabotage.”

What’s at stake? It’s the generous natural gas contracts private companies have with the state-run power company. These private companies stipulate payment even when the gas isn’t being delivered. Federal Electricity Commission director Manuel Bartlett said Monday that CFE faces bankruptcy unless the contracts with the companies can be renegotiated.

Mexico's President Andres Manuel Lopez Obrador as delighted supporters — but also fueled criticism — with his aggressive austerity measures

Ronaldo SCHEMIDT, AFP/File

Bartlett said that since 2015, CFE has paid private sector companies 62 billion pesos ($3.2 billion) under contracts for gas delivered via pipelines to generate electricity, even when gas wasn’t flowing through the pipelines. Several pipeline projects have been held up because of local protests.

Lopez Obrador has always been a staunch critic of the government’s 2013-14 energy reforms that ended the wholesale electricity monopoly held by CFE and the opening up of the Mexican oil industry to private investments.

“We are looking to achieve a voluntary restructuring of agreements and commitments within the framework of the law … The Mexican government is committed to not increase electricity prices for consumers, but we want private companies to help in this initiative,” he said.

According to the Miami Herald, Lopex Obrador compared private sector investment to a “conquest,” a word not welcomed by many Latin Americans because it conjures up the Spanish conquistadors who laid stake to the region. “Mexico is no longer a land of conquest, this is over,” he said.