Compass Money: AMLO Threatens Constitutional Change Over Energy Law Dispute
Solar panels at ITESM Campus Ciudad de México in Mexico City. (Wikimedia Commons)
Mexican President Andrés Manuel López Obrador (AMLO) of Mexico threatened on March 17 to begin an initiative forcing constitutional reform if his latest law targeting the energy sector is not implemented. López Obrador has sought reform to limit private investment in the energy sector and give the state more control.
Judge Juan Pablo Gómez Fierro, a federal judge in Mexico specializing in economic competition, suspended on March 11 the amendment to the Electricity Industry Law created by López Obrador. The suspension could hold up the law in federal courts for as long as eight months; if Mexico’s Supreme Court takes the case, this process could last for years.
This law would have given power generated by the state-owned Federal Electricity Commission (CFE) priority on the national grid over privately produced energy; renewable energy companies initially challenged the law.
“This district court warns that the modifications made to the Electricity Industry Law could damage free competition in the electricity sector,” Fierro stated in his decision. He also noted that this law could damage the environment as it favored traditional power sources over renewable ones.
A report from the National Resources Defense Council (NRDC), a U.S.-based environmental advocacy group, raised several concerns about the effects the law would have on implementing renewable energy technology in Mexico. They highlighted the several changes that López Obrador’s administration has made that make it difficult for clean energy companies to operate. Some of its attempts include changing clean energy certificate rules, delaying the beginning of solar and wind projects, and slowing the permitting process for green projects.
NRDC also asserts that the proposed policy would violate the USMCA by undermining fair market competition in the energy sector. Critics in both the U.S. and Canada have echoed this viewpoint.
The United States Chamber of Commerce derided the law in February 2021, stating, “Such drastic changes would open the door for the reinstatement of a monopoly in the electricity sector and, we believe, would directly contravene Mexico’s commitments under the U.S.-Mexico-Canada Agreement.”
Other critics of Electricity Industry Law believe that the decision to move towards state control of the industry will discourage foreign investment in Mexico. They believe that the decision to reverse the previous stance of the Mexican government will undermine faith in the country and cause investors to seek out alternative markets.
The opening of the energy sector to private investment is a fairly new practice in Mexico; before reforms in 2014, Mexico’s energy sector had been nationalized for 76 years. The decision to reduce state control was part of efforts to liberalize the economy that began in the 1980s. López Obrador’s predecessor, President Enrique Peña Nieto, made reducing state control a key point in his attempts to improve Mexico’s economic growth and competitiveness.
AMLO criticized this decision due to fears of foreign exploitation of Mexico’s natural resources. He claimed that the Electricity Industry Law will simply correct for a bias in the market towards private investment that currently exists.
López Obrador used the recent natural gas-related power outages in Texas and Mexico to further justify the need for state control of the energy. He argued that the disruption of supply from foreign companies that caused the outages is proof that Mexico needs to become more independent.
In a press conference in February, AMLO directly condemned opponents of the proposed law, asserting, “[It’s] a disgrace that Mexican lawyers are hired by foreign companies that want to continue looting Mexico. Of course, they’re free [to do so] but hopefully they’ll internalize that it’s treason.”