Andres Manuel Lopez Obrador
Photographer: Alejandro Cegarra / Bloomberg
Photographer: Alejandro Cegarra / Bloomberg
Mexican President Andres Manuel Lopez Obrador’s harsh tactics against foreign energy companies are halting projects and reversing a process that, until recently, made the country one of the world’s most popular oil and renewable markets.
About 200 wind farms, natural gas plants, solar panels and other projects are according to government documents, after Lopez Obrador ordered an end to permits, exacerbating an already lengthy bureaucratic process. Renewable giant Iberdrola SA has delayed new investments in Mexico, while AES Corp. postponed a $ 400 million wind farm deal due to licensing issues, three people familiar with the case said.
In the oil and gas sector – an industry already hampered by supply surpluses, low prices and an accelerated transition from fossil fuels – auctions for deep-water drilling permits have been suspended since AMLO, as the president knows, in late 2018. Meanwhile, a of Mexico’s largest private oil discoveries are in limbo amid protracted ownership talks between the borer and the state controlled Pemex.
Foreign direct investment
Energy investment in Mexico is plunging due to pandemic and licensing delays
Source: Ministry of Economic Affairs
Central to Mexico’s U-turn policy is AMLO’s energy nationalism, which aims to prioritize the country’s controversial state-owned enterprises at the expense of private operators. The president has repeatedly said he is considering amending the constitution to reverse the country’s opening up to foreign investors, a historic step taken in 2014 under the previous government that ended more than 75 years of state monopoly in the energy sector.
AMLO’s “clear goal is to change the rules of the game so that the state reigns supreme and can dictate the conditions under which private money enters the system,” said Duncan Wood, director of the Wilson Center’s Mexico Institute. “Everything indicates that he wants to close the system again.”
Read more: AMLO has a grand plan to transform Mexico cheaply
‘Huge blow’
The cancellations and stalled investments weigh on Mexicans who counted on such projects for jobs and growth as the economy faces its worst contraction in nearly a century. When the government company refused to supply gas for Iberdrola’s planned $ 1.2 billion power plant in Tuxpan, the port city in eastern Mexico was “hit hard,” said Mayor Juan Antonio Aguilar Mancha.
Solar panels at a solar power plant in San Luis de la Paz, Guanajuato state, Mexico.
Photographer: Alejandro Cegarra / Bloomberg
“This was a significant investment that would create more than 2,000 jobs that would revitalize our region, our city,” said Aguilar Mancha, a member of the conservative opposition party PAN.
Two years after taking office in his government, AMLO’s anti-business strategy for the energy sector contrasts with its conservative approach to much of the government’s economic policy, from tightening the budget to supporting a new free trade agreement with the government. USA and Canada.
Following a commitment to revitalize the oil producer, formally known as Petroleos Mexicanos and state owned company Comision Federal de Electricidad, or CFE, Lopez Obrador is playing harder and harder against private companies, especially foreign groups. Regulatory changes and permitting delays are among the measures taken to stifle competition. The president has also publicly attacked Iberdrola and oil explorer Repsol SA as virtual monopolies.
Swelling lag
The backlog of stalled projects has risen dramatically since Lopez Obrador took office. Six months before its inauguration, there were less than 30 projects held up outside the legal framework. By mid-October, that figure was around 200, about half of which was in 2019 – months before Covid-19 emerged. Since October, regulators have given a number of projects the green light, but have not disclosed the scale of the approvals.
As a result, the energy investment climate in Mexico is deteriorating rapidly. During his first year in office, foreign direct investment in all types of energy projects fell by more than 60% to $ 2.25 billion, figures from the Economy Ministry showed. In the first three quarters of 2020, it fell to $ 1.3 billion.
Investors are now very reluctant to allocate money to Mexico due to concerns about the rule of law and a lack of regulatory independence, said two executives who would not be named for fear of government retaliation.
The office of the president and AES declined to comment. The Energy Regulatory Commission said allowing delays “stems from the suspension of deadlines and legal deadlines” imposed in response to the pandemic.
Still, some foreign companies that don’t compete directly with state-owned companies find it easier to do business, said Doug Shanda, CEO of Mexico Pacific Ltd., which is building a gas transportation terminal in the north. state of Sonora.
The permit for the Mexico Pacific pipeline was quickly approved by the regulator in May, even under reduced staffing levels due to the pandemic, Shanda said in an interview. The regulator “met only every other month,” he said.
Zama’s fate
French energy giant Electricite de France SA has been waiting nearly a year for a social impact permit it needs to get a 300 megawatt wind farm. But the Department of Energy office issuing such things has been closed to the pandemic and has no plans to reopen until next year. Separately, Cubico Sustainable Investments, owned by two of Canada’s largest pension funds, has canceled a few renewable projects following regulatory issues, according to people familiar with the situation.
EDF said it “closely follows Mexican and international procedures for consultation with local communities, associations and local authorities.” The social impact permit has been delayed because the Covid-19 outbreak hampered efforts to obtain public input, the company said. As for Cubico, a spokesman declined to comment.
In the oil sector, development of the Zama discovery slowed after the Department of Energy ordered it in Houston Talos Energy LLC and its partners to merge the find with the overlapping Uchukil field owned by Pemex.
The future of the industry
With billions of dollars at stake, the Talos-led group and the Mexican oil titan have been at odds for months over which entity can claim the lion’s share of reserves. If no agreement is reached before the early January deadline, the Department of Energy can decide for them. The standoff is being closely watched across the industry due to its implications for other foreign explorers.
“Until at this point we have taken all the risks, spent all the capital and found all the oil, and we are ready to work with Pemex to move forward to get this project under development so there is a view of the first production, ” Talos CEO Tim Duncan said in an email Pemex did not respond to requests for comment.
“The problem is much bigger than Zama himself,” said David Enriquez, a partner at Law firm Goodrich Riquelme y Asociados. “What is at risk is the future of the industry and whether the Mexican government takes the nationalist or pragmatic approach and does what is best for the country.”