Key moment for a better electrical reform, with savings of 185,000 million dollars: Mexico Evaluates

Heading to the vote electrical reform to the Constitution whose opinion will be discussed in the Chamber of Deputies starting next Monday, the Mexico Evalúa analysis center assured that the future of the country is at a crucial moment, since there is a potential cost of up to 85,000 million dollars in compensation and another 100,000 million dollars in investments that would not arrive if it is approved, for which he recommended rejecting the proposal, as well as the Electricity Industry Law that is discussed this Thursday in the Supreme Court of Justice.

At the same time, he proposed that modifications be carried out in the private generation of electricity as proposed by the opposition to the proposal and the Federal Commission of Economic Competition, so that without modifying the Magna Carta, all private companies that generate in the country, putting an end to the legacy regime and opening the possibility to associations of the Federal Electricity Commission (CFE), as explained in the forum “Energy reform yes, but not this one”.

Ana Lilia Moreno, coordinator of the Regulation program of México Evalúa proposed to strengthen the sector, its reliability and legality, migrating all private contractors to a new regime through medium-term auctions for contracts between one and three years and would be executed in the next three to six months, so that they would compete for a position in the office which currently makes up 12% of the generation that is the self-supply, as well as 15% of the purchases of the CFE and between private individuals to the wholesale market; 31% are independent energy producers, and 4% are electricity sold through long-term auctions.

In turn, Edna Jaime, general director of México Evalúa, explained that while the party in government has made an effort not to budge one iota from the presidential initiative, the opposition has been clear and will not give it the necessary majority for it to be approved, so it is still time to reject both this proposal and maintain the unconstitutionality of the Law of the Electricity Industry in Court and not compromise public finances and those of the Federal Electricity Commission (CFE).

According to his analysis, the reform would concentrate a lot of power in the CFE, disappearing the regulators without proposing new surveillance mechanisms, it would give the CFE monpsony power to use for political ends, it would violate international agreements in not only environmental but economic matters. , it would drive away investments from those who would have to look for other countries as a destination and it would generate all kinds of pressures on public spending.

The high costs of approval

Mariana Campos, coordinator of the Public Expenditure program of Mexico Evalúa, explained that while the Treasury increased its total income by 167,000 million pesos in 2019, with slight increases in all revenues, both collection and oil, the CFE it was the only organization that presented a decrease and even subtracted 78,000 million pesos from the government for the transfers it receives to subsidize domestic energy, with which this company has become an onerous burden, thus when it reached 2021 it presented the worst balance that has presented in 30 years.

“CFE is in a critical situation and the government is desperate to improve the situation, which is behind this reform, but sooner rather than later this reform will have a very negative effect on the treasury,” he said, since in On average, the cost of electricity generation by the CFE is double what it costs private companies, due to the cost of subsidies for basic household consumption.

On the other hand, he recalled that if the permits and contracts Currently in force, as proposed in the proposal, the government will have to pay between 44,000 million dollars and 85,000 million dollars, according to estimates by analysts, banks and those affected.

Opportunity costs will be added to these expenses, explained Cecilia Aguillon, director of the Energy Transition Initiative of the Institute of the Americas, who assured that it is estimated that close to 100,000 million dollars are expected as an investment opportunity to reach Latin America for power plants. manufacturing from Asia and Mexico. At the same time, the trading partners, Canada and the United States, have all the conditions to ensure the value chain of strategic products and the need to locate their plants near their territory. However, an environment of threats such as the reform to regulatory certainty and already signed contracts is something that drives away investment.

“Mexico has been an extremely reliable country for the arrival of investmentshistorically”, he assured, “for Mexico to be able to compete, internal investments are needed in education, infrastructure and, above all, a market that provides accessible, quality and reliable energy, as the war in Ukraine has shown, it is necessary to reduce dependence on fossil fuels. imported”.

Finally, Tony Payán, director of the Mexico-United States Center at the Baker Institute, Mexico requires a mix in which members of the private sector participate with a flexible CFE, although not privatized but regulatory and separate from the government with sufficient capacity to compete and participate in all the needs of the sector, which are many.

“This reform it ties the hands of Mexico not only for investments but for the Mexicans themselves, as we have seen with the recent blackouts, and pretending that the government can finance everything is something absolutely illusory,” he said.

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