Back in June, one of the most ardent Mexican TV pundits supporting the López Obrador administration said on Twitter that the government’s “most colossal battle” was being fought by “by a group of patriots led by Manuel Bartlett”, the head of state-owned power utility CFE.
Since taking office in 2018, the López Obrador administration has pushed regulatory changes and legal reforms aimed at favoring CFE over private electric companies, many of them foreign-owned. The TV pundit went further to say that if the administration emerged “victorious” in its efforts Mexico would have a suitable foundation for its development. He closed with this sentence: “If not, we’ll be on our knees before the foreigners. That, at this moment, is what matters most.”
It seems that for the López Obrador’s movement, the fight is no longer about having a country with greater social justice. They have apparently given up, in view of the government’s poor performance. Some weeks ago, the agency in charge of measuring poverty levels in Mexico (CONEVAL) estimated that 9 million more people fell into poverty as a result of last year’s recession. Also, let us not forget that the administration’s “great battle for food sovereignty” seems to be failing given the record levels of grain imports. The same can be said about López Obrador’s anti-crime strategy which was originally promoted as “hugs, not bullets”. Today, bullets are killing more people than ever.
But if the López Obrador administration’s most important battle is now that state-run utility CFE achieves dominance in Mexico’s electricity market, they’ve already gone astray. Armed with contempt for technical knowledge on how that power market should be organized, the administration is locked in a battle with some wind turbines. The country’s electric power policy ought to be to guarantee electricity, produced at low cost and with low emissions, to all who demand it.
Monopolies can be big business for their owners when it comes to a private company. But in the hands of a government like Mexico’s, both CFE and its sister oil company Pemex, have been unproductive organizations. Both monopolies have become a giant drag on Mexican public finances and the rest of the economy. With the current López Obrador administration, this burden will continue to grow. In 2020, CFE posted a loss of MXN $78.9 billion. Two years prior, it had profits: MXN $27.2 billion.
One of López Obrador predecessor’s goals was to strengthen the CFE. That is why then president Enrique Peña Nieto pushed a landmark energy reform in 2013. The reform allowed CFE to reduce its labor liability by reducing retirement benefits for future workers. After thorny political negotiations, the CFE succeeded. The reform gave CFE breathing room by getting the government to take on part of the labor liability as well as lower payments in the future to cover its workers’ pensions. President López Obrador decided to cancel those changes. He chose to weaken the CFE’s already paltry finances.
Peña Nieto’s electricity reform respected the CFE’s monopoly in the power grid, albeit controlled by an independent agency (CENACE) to avoid conflicts of interest in deciding which power plants would connect to the Mexican electric grid first. It also maintained the monopoly of delivery to homes and small businesses. This allowed for competition between government and privately-owned power companies.
The 2013 reform sought a power system capable of providing Mexico with the clean and cheap energy that we need. Competition in power generation got underway with a central rule: the lowest-cost producer would connect to the grid first. This would allow the CFE to buy cheap electricity and sell it at a high price. This operation yielded a ton of money.
The López Obrador administration’s heroic deed was to change that rule and have CFE, the most expensive and polluting provider in Mexico, be the first connected to the grid. This will increase energy costs across the economy. According to energy analyst David Shields, to make matters worse, this is shaping up to be the first six-year presidential term in which CFE will not be capable to build a single new power plant.
The government’s great heroic deed of the following years will be to deal with the blackouts. This risk is also driving away foreign manufacturing investment in Mexico. Strange view of the world, indeed.
* Carlos Elizondo Mayer-Serra is professor at the School of Government and Public Transformation at Tec de Monterrey, in Mexico City. A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @carloselizondom