Andres Manuel Lopez Obrador
Photographer: Alejandro Cegarra / Bloomberg
Photographer: Alejandro Cegarra / Bloomberg
The hardball tactics of Mexican President Andres Manuel Lopez Obrador against foreign energy companies stop projects and reverse a process that, until recently, made the country one of the hottest and most renewable oil markets in the world.
About 200 wind farms, natural gas plants, solar grids and other projects have been blocked, according to government documents, according to Lopez Obrador he ordered the permit to be stopped, exacerbating what was already a long bureaucratic process. The renewable giant Iberdrola SA has postponed new investment in Mexico, while AES Corp postponed a $ 400 million deal for a wind farm due to licensing issues, according to three people familiar with the matter.
In the oil and gas sector – an industry already plagued by supply cuts, low prices and an accelerated transition from fossil fuels – deepwater drilling licensing tenders have been suspended since AMLO, as the president is known, took power at the end of 2018. Meanwhile, one of the largest in Mexico private oil discoveries are in the background, amid protracted ownership discussions between driller and state-controlled Pemex.
Foreign direct investment
Energy investments are sinking in Mexico due to the pandemic and allow delays
Source: Ministry of Economy
At the heart of Mexico’s policy, the upside is AMLO’s energetic nationalism, which aims to prioritize struggling state-owned companies over private operators. The president repeated he said he was considering amending the constitution to reverse the country’s openness to foreign investors, a historic step taken in 2014 under the previous administration, which ended more than 75 years of state monopoly in the energy sector.
“The clear goal of AMLO is to change the rules of the game so that the state has the advantage again and can dictate the conditions under which private money enters the system,” said Duncan Wood, director of the Mexico Institute at Wilson Center. “Everything indicates that he wants to shut down the system again.”
Read more: AMLO has a big plan to transform Mexico at cheap prices
“Huge shot”
Cancellations and blocked investments are squeezing Mexicans who have relied on such jobs and growth projects as the economy faces the biggest contraction in nearly a century. When the government utility refused to supply gas to Iberdrola’s $ 1.2 billion planned power plant in Tuxpan, the eastern Mexican port city suffered a “huge blow,” said Mayor Juan Antonio Aguilar Mancha.
Solar panels at a solar plant in San Luis de la Paz, Guanajuato, Mexico.
Photographer: Alejandro Cegarra / Bloomberg
“This was an important investment that would generate over 2,000 jobs, which would give a new soul to our region, our city,” said Aguilar Mancha, a member of the conservative opposition party PAN.
Two years after his rule, AMLO’s anti-business strategy for the energy industry contrasts with his conservative approach to much of the government’s economic policy, from tightening the budget to supporting a new free trade agreement with the US and Canada.
Following a commitment to revive the oil producer officially known as Petroleos Mexicanos and state utility Federal Electricity Commission or CFE, Lopez Obrador is increasingly playing with private companies, especially foreign groups. Regulatory changes and delays in authorization are among the measures implemented to curb competition. The President also publicly attacked Iberdrola and the oil explorer Repsol SA as virtual monopolies.
Outstanding archive
The number of blocked projects has increased dramatically since Lopez Obrador took office. Six months before the inauguration, there were less than 30 projects supported beyond the legal window. Until mid-October, the figure was about 200, of which about half were requested in 2019 – months before the appearance of Covid-19. Since October, regulators have approved certain projects, but have not disclosed the extent of the approvals.
As a result, the Mexican energy investment climate is deteriorating rapidly. In its first year in office, foreign direct investment in all types of energy projects fell by more than 60% to $ 2.25 billion, according to figures from the Ministry of Economy. In the first three quarters of 2020, it fell to $ 1.3 billion.
Investors are now very hesitant about committing money to Mexico because of concerns about the rule of law and a lack of regulatory independence, said two directors who did not want to be appointed for fear of government pay.
The President’s Office and the ESA declined to comment. The Energy Regulatory Commission has said that allowing delays “resulting from the suspension of deadlines and legal deadlines” imposed in response to the pandemic.
However, some foreign companies that are not in direct competition with state-owned enterprises find it easier to do business, according to Doug Shanda, chief executive of Mexico Pacific Ltd., which is building a gas export terminal in northern Sonora.
The Mexico Pacific pipeline permit was quickly approved by the regulator in May, even in reduced staffing conditions due to the pandemic, Shanda said in an interview. The regulatory agency “met only every two months,” he said.
The fate of Zama
French energy giant Electricite de France SA has been waiting almost a year for a social impact permit to be built 300 megawatt wind farm. But the office of the Ministry of Energy, which issues such things, has been closed due to the pandemic and does not intend to reopen until next year. Separated, Cubico Sustainable Investments, owned by two of Canada’s largest pension funds, has canceled a couple of projects that could be renewed after regulatory agreements, according to people familiar with the situation.
EDF stated that it “scrupulously complies with Mexican and international consultation procedures with local communities, associations and local authorities”. The social impact permit was postponed because the Covid-19 outbreak hampered efforts to obtain public contributions, the company said. As for Cubico, a spokesman declined to comment.
In the oil sector, the development of the Zama discovery slowed down after the Ministry of Energy ordered the Houston headquarters Talos Energy LLC and its partners will merge the merger with the overlapping Uchukil field owned by Pemex.
The future of the industry
With billions of dollars at stake, the group led by Talos and the Mexican oil titan has been in front of the entity for months, before which the entity can claim the lion’s share of the reserves. If no agreement is reached by the deadline in early January, the Ministry of Energy can decide on them. The defeat is closely watched throughout the industry because of its implications for other foreign explorers.
“Up to at this moment we have taken all the risk, we have spent all the capital and we have found all the oil and we are ready to collaborate with Pemex to advance so that this project is developed, so that there is a line of view on the first production ”. Tim Duncan, CEO of Talos, said in an email. Pemex did not respond to requests for comment.
“The problem is much bigger than Zama itself,” said David Enriquez, a partner at Goodrich Riquelme and Associates law firm. “What is at stake is the future of the industry and whether the Mexican government takes a nationalist or pragmatic approach and does what is best for the country.”