What’s the political myth that has damaged Mexico the most in the last century? The indoctrination of the Mexican people to believe that the country’s sovereignty depends on the government monopolizing crude oil extraction and electricity generation.
In reality, however, sovereignty hinges on the economic strength of a country. It depends on a country’s ability to grow and generate wealth to invest in modern infrastructure. It is based on having a health care system that improves living standards. It relies on having a high quality public education that levels the playing field for all young people, regardless of the neighborhood where they were born. In the 21st century, sovereignty is also grounded on a country’s ability to develop intellectual property and to have a seat at the table where important decisions on data, technology and artificial intelligence will be made.
How is it that consolidating the monopolistic practices of Mexico’s state-owned oil firm Petróleos Mexicanos (Pemex) and state-owned utility CFE further these goals? The days of fossil fuels are numbered. Around the world, private and state-owned oil firms are heavily and hastily investing in renewable energy generation. Due to its decreasing value, producing countries should race against the clock to extract oil as quickly as possible and devote revenues to build schools, hospitals, and airports. That’s why Mexico should be focused in allowing state-owned Pemex to devote itself to pumping oil as fast as it can in partnership with private companies with more resources and technology.
When it comes to electricity the goal cannot be clearer for Mexico: to produce the cheapest, cleanest, and most reliable power possible. This would benefit Mexican consumers who today spend too much in their utility bill, particularly in the summer, and would also increase competitiveness of Mexican companies that would create more jobs. State-owned CFE ought to focus on the efficient distribution of electric power. Private investors are capable of building new power-producing plants far more efficiently than the CFE’s clunkers. Back when CFE had the entire monopoly of electricity in Mexico, union honchos were able to direct contracts to their friends for building expensive and inefficient plants. Along the way, they got rich.
The previous administration’s decision to allow private firms to invest billions of dollars in the country’s electricity sector was a very profitable arrangement for the country. The CFE lacked money and private companies built power plants to the state-owned company’s specifications. They were supplied with natural gas to generate electricity. This setup fostered competition among private power companies. CFE purchased first from whoever produced the cheapest, and was able to sell energy at market prices, generating considerable revenue.
The fact that CFE is using its resources for ludicrous purposes reminds us why state-owned companies are so inefficient. Take for example CFE’s recent decision to forgive the equivalent of US $551 million in delinquent electricity bills to 607,000 residents in Tabasco state (the state where AMLO was born). State-owned firms like CFE are often run with political criteria, squandering taxpayers’ money. All Mexicans will pay for decisions like that. Decisions like forgiving debts of Tabasco residents set a terrible precedent. Other political clienteles will demand equal treatment.
Few things would weaken Mexico’s sovereignty more than the López Obrador administration’s recently proposed reforms to the country’s Electricity Industry Law. The bill proposes to give preference to CFE’s expensive electricity generation. Thermoelectric plants run with fuel oil -like those owned by CFE- generates power at five times the cost of wind and solar plant and that is just the direct cost. How much is the cost to public health of sulfur dioxide emissions associated to CFE’s old thermoelectric plants? Will electricity bills reflect the five-fold increase in the cost of giving priority to CFE’s power generation? Probably not, so in reality Mexican taxpayers will foot the bill.
What could be something more supportive of Mexico’s sovereignty? Having healthy public finances or incurring into more debt? Every year, the Mexican government transfers the equivalent of two points of GDP of taxpayers’ money to support Pemex.
Mexico needs to attract private investment to create jobs. Changing the rules mid-game drives it away. The proposed reforms to the Electricity Industry Law do exactly that. Currently, there are US $26 billion of private investments in renewable energy that are now at risk. Expensive electricity slays Mexico’s competitiveness. Electricity from dirty sources -like CFE’s- also affects the private sector by not allowing industries to meet their commitments to reduce their carbon footprint. Mexico is shooting itself in the foot when it could be attracting supply chains coming out of China.
The López Obrador administration isn’t trying to turn around Pemex’s and CFE’s shoddy management. It is only seeking to shore up their monopolies in the oil and electricity sectors. Those who believe in the absurd argument of “sovereignity” should understand that Pemex and CFE generate colossal losses –and will continue to do so. If Pemex debt was divided among all Mexicans, the amount each Mexican would have to pay would be a sum equivalent to US $1,450. In the case of CFE, it would be US $500. Mexicans should start saving because both figures will certainly grow fast.
* Jorge Suárez-Vélez is an economic and political analyst He is the author of The Coming Downturn of the World Economy (Random House 2011). A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @jorgesuarezv