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    U.S. warns that Mexico's energy policy generates uncertainty


    August 1, 2022 - CE Noticias Financieras

     

      In the midst of trade disputes between the United States and Mexico, the US government published a report harshly criticizing the administration of President Andrés Manuel López Obrador, citing breach of contracts, insecurity and corruption.

      According to the Investment Climate Statement 2022 issued by the U.S. State Department, Mexico's efforts to reverse the 2013 energy reforms, including changes to the electricity law, the hydrocarbons law and the proposed September 2021 constitutional reform prioritizing generation from state-owned power company CFE, "further increase uncertainty."

      "The Lopez Obrador administration has made important regulatory and policy changes that favor Pemex and CFE over private participants. The changes have led private companies to file lawsuits in Mexican courts and seek compensation through international arbitration," the document states.

      The US government's accusations echo after the Office of the US Trade Representative (USTR) sent the formal request for consultations under the Treaty with the United States and Canada (T-MEC) on energy issues.

      In the hydrocarbons sector, Washington notes in its report that foreign investors were discouraged when the Mexican government awarded Pemex the operation of a major shallow-water oil discovery made by a consortium led by a U.S. company.

      "The private consortium had invested more than $200 million to make the discovery and is seeking compensation through international arbitration," it said of the Zama field, which Pemex will exploit with Talos Energy.

      Regulators are concerned

      In his view, "investors are increasingly concerned" that the Mexican government is undermining confidence in the rules of the game, particularly in the energy sector, by weakening the political autonomy of Cofece, the CNH, Cenace and the CRE.

      "The independence of the CRE and CNH was further undermined by a government memorandum to both bodies instructing them to use their regulatory powers to favor state-owned Pemex and CFE," the document lambasts.

      Another criticism is that CFE and Pemex have a greater advantage over private companies in accessing capital, since in addition to receiving direct budget support from the Ministry of Finance, both entities also receive implicit credit guarantees from the federal government and borrow funds in the public markets at a rate below the market level they would normally have because of their corporate risk profiles.

      "In addition to budget support, the CRE and Sener have delayed or stopped the necessary permits for new service stations, fuel terminals, fuel imports and private sector power plants, which provides an additional non-commercial advantage to CFE and Pemex," the paper states.

      Corruption and insecurity

      Two issues also emphasized were corruption and insecurity in Mexico. Washington noted that despite the government's efforts, corruption permeates the public and private sectors, where government and law enforcement officials are sometimes complicit with criminal elements, "posing serious challenges to the rule of law."

      "Corruption involves government officials stealing from public coffers, creating fake companies to siphon public funds, or demanding bribes in exchange for not prosecuting criminal activities or awarding public contracts," he said.

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