Mexican President Andrés Manuel López Obrador has defined energy topics as a top priority of his government, yet his energy policy has become ensnared. He has recently promoted two reforms, to the electricity law and to the hydrocarbons law, which are condemned to end up in court, as they are unpractical, authoritarian and they violate basic rights, the Constitution and trade agreements.
Faced with this, the President, supported by his Energy Minister, Rocío Nahle, has been explaining and trying to justify his vision and his reasons to public opinion, while threatening to propose amendments to the Constitution if his laws do not move forward.
The concepts López Obrador uses in his discourse have a wide impact: self-sufficiency, energy security, rescuing state-run energy firms Pemex and Federal Electricity Commission (CFE). They are vital topics that we should all think about and discuss seriously. “We should produce in Mexico what we consume”, he says. “Pemex and CFE are being protected, because they belong to the Mexicans”. “As they are ours, you will not be paying more for gasoline and electricity”. “If we depend on other countries for fuels, we could not resist a threat or a blockade”.
These ideas –which are half-truths at best– could be the starting point for a national debate and for seeking consensus and appropriate policies. But there is no debate. Mexico’s President is unyielding, insists on imposing his will and chooses confrontation.
But López Obrador’s six-year government term moves on and there are almost no results to show on the energy front. There is an immense amount of politicking, a lot of ideology, but little action and very little creativity. Pemex and CFE are not on a path to modernization. On the contrary, their operational and financial deterioration worsens. There are no new energy infrastructure works ongoing, except for Pemex’s Dos Bocas refinery, where work is behind schedule and above cost. There is no innovation, Pemex oil output continues to fall, the company’s “priority oilfields” are failing, there is a lack of maintenance in Pemex’s refineries, key projects have been cancelled, three times as much heavy fuel oil is being burned at some CFE’s power plants –at levels which imply a public health scandal–, public investment is scarce and incentives have been eliminated for private investment.
Structural and labor problems persist at the state-run firms, as do all kinds of inefficiencies. How can CFE’s power plants and Pemex’s refineries be modernized, when money is lacking? The CFE has still not tendered the power generation projects it promised, both regarding hydropower and thermal combined cycle plants. They are far behind schedule and, as things are, the government’s six-year term could end and the public works will remain unfinished or may not even get started. In that context, what self-sufficiency? Pemex’s refineries process a third of the gasoline consumed in Mexico and it is impossible for them to produce more. A thorough revamp of the refineries would have a stratospheric cost. Rather, it should be accepted and appreciated that access to imports is precisely what provides energy security to the country.
But the President wants Mexico to look inward, not abroad. Oil production is falling, and it is because Pemex cannot produce more. It is not because of a desire to export less or contribute to the OPEP+ agreements. The theoretical proposals for the state oil company to sell its heavy fuel oil abroad are nothing more than options for getting rid of it, that is, places outside of Mexico where this residual fuel can be sold at an extremely low price and at enormous losses to Pemex.
The President is betting that the Mexican Supreme Court and judicial authorities will end up supporting him with his energy reforms. That might well happen, but it will not solve the country’s energy challenges, and even less so when a tsunami of litigation and arbitrage is expected that will come at an enormous expense to the country.
If López Obrador does not rethink his ideas, if he does not heal the wounds and conciliate with the private-sector energy companies that have suffered damage under recent measures, his energy policy will continue in a dead-end for the rest of his government term. It will be a lost opportunity for the energy industry and will be a synonym of total failure for his “Fourth Transformation”. It is incredible that he is unable to overcome his stubbornness, his bad faith and his insults in favor of seeking consensus and moving Mexico’s energy industry forward. But that is how things stand.
* 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.
