Conflicts and disagreement with the business community has marked the first two years in government for President Andrés Manuel López Obrador, who has been contradictory in accusing the private sector of excesses and corruption, in everything from the Mexico City airport project to gas pipelines, while acknowledging that public investment alone will not reactivate the economy.
A disastrous energy policy, which intentionally curbs or even destroys private investments, has been implemented, supposedly with the aim of allowing state-run energy firms Petróleos Mexicanos (Pemex) and Federal Electricity Commission (CFE) to dominate the market.
It is not about making the cake bigger for all participants. Permits are denied to private players and oil bidding rounds and renewable electricity auctions are no longer held. Only the state-run companies and Lopez Obrador’s pet projects seem to matter.
Three groups of infrastructure projects have been announced, aimed at finding private capital to complement public-sector investment, but they have not been attractive. There were no energy projects in the first group. In the second, there were only refining projects to be built for Pemex, that would not attract direct private investment. In the third group, there are half a dozen combined-cycle power plants to be built for the CFE, but financed by private companies. There is really nothing worthwhile in any of the three.
The most unacceptable aspect of these policies is that they imply many missed opportunities. To get an idea of how bad this is, one only has to look at a proposal of 279 energy infrastructure projects, drawn up by Mexico’s Business Coordinating Council (CCE) last August, almost none of which were approved by the President and have not moved forward.
In that proposal there are 66 solar farms, 49 wind farms, 18 service stations and 31 fuel storage terminals, among others. None of them seem to have any hope of getting permits from the Energy Regulatory Commission (CRE) or from other authorities.
That is only the tip of the iceberg. The President has ordered to put on hold almost all new private investment in energy. He says that the private sector already operates 46 percent of electric power generation and 20 percent of oil production. These quotas should not rise from there, he says. That being the case, how can new private investments in energy be made?
It is impossible to quantify how many projects, big and small, have been thwarted. Many companies assure that in 2020 they could have approved and started up numerous projects, had it not been for government obstinence. Tens of billions of dollars of energy investments have been put off or cancelled. Could it be that over US $100 billion have not been invested in the Mexican economy because of lost confidence? It is also implicit that, as a result, the cost of energy to consumers will be more expensive.
Finished works, such as windfarms and gas pipelines, and some in operation have also been halted. Last week, the government shut down the gas valve at Braskem Idesa’s Ethylene XXI plastics-production complex. It was a unilateral decision, an abuse of authority, since only one of the complex’s two supply contracts fell due and since the complex has no ethane supply option other than from Pemex. The future of the US $5 billion project, is now in doubt.
The government does not take into account that Ethylene XXI is –apart from Pemex– the only large-scale industrial investment in the south-east of Mexico, providing employment to thousands of families and feedstocks for hundreds of businesses, in addition to giving added value to the country´s hydrocarbons. But the government –as usual, without proving it–accuses that there was corruption in building the complex and discretionally cut off negotiations for resolving differences with Pemex on ethane supply and prices.
Now, it is to be feared that, with the closure of the Office of the Presidency, where Alfonso Romo was the President’s liaison with the private sector, López Obrador could now adopt a more radical position against the business community. This defines a crucial challenge for 2021: finding a way to change the President’s attitude, If it cannot be changed, a dark future lies ahead.
* David Shields is an energy industry analyst. His e-mail: david.shields@energiaadebate.com A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition.
