Mexico vows to press on with power changes amid US concerns

MEXICO CITY (AP) — Mexico’s president vowed Thursday to press ahead with changes to the electrical power industry despite U.S. concerns that they could close off markets, choke off competition and possibly violate the U.S.-Mexico-Canada free trade pact.

After meeting with President Andrés Manuel López Obrador on Wednesday, U.S. climate envoy John Kerry expressed “significant concerns” over Mexico’s plan to favor its state-owned electricity company and limit private and foreign firms that have invested in renewable power in Mexico.

López Obrador said Thursday the proposed changes “don’t affect the treaty at all,” despite provisions in the USMCA pact that prohibit countries from favoring domestic companies over foreign competitors.

But he acknowledged foreign companies have been complaining that the change in rules would affect investor confidence in Mexico.

“They say the rule of law is being violated, they want to expropriate the electrical industry, there are no guarantees for investors in Mexico, we have no confidence,” López Obrador said, adding, “We are not going to get in a fight with the U.S. government.”

U.S. firms have complained bitterly about the constitutional changes proposed in October. They are still held up in the Mexican Congress, where they need a two-thirds majority that López Obrador hasn’t yet been able to pull together.

In a statement, the U.S. Embassy said that in Wednesday's meetings, Kerry “raised the significant concerns the Biden-Harris Administration has about Mexico’s current energy-sector proposal and the imperative to bolster open and competitive economies, consistent with USMCA.”

The changes would guarantee a majority market share for Mexico's state-owned power plants that often burn dirty fuel oil or coal, while limiting private wind, natural gas and solar plants to a minority market share.

Many U.S. companies operating in Mexico either invested in cleaner power plants themselves or rely on cheaper energy produced by them.

But López Obrador’s affection for fossil fuels is also an underlying issue. He often waxes nostalgic about his youth in the oil-rich Gulf coast state of Tabasco and has boosted investment in oil refineries. Those refineries often produce dirty fuel oil as a byproduct, and it has to be burned at government power plants because few other buyers want it anymore.

The bill submitted in October would cancel contracts under which 34 private plants sell power into the national grid. The plan would also declare “illegal” an additional 239 private plants that sell energy directly to corporate clients in Mexico. Almost all of those plants are run with renewable energy sources or natural gas.

The measure also would cancel many long-term energy supply contracts and clean-energy preferential buying programs, often affecting foreign companies.

It puts private natural gas plants almost last in line — ahead of only government coal-fired plants — for rights to sell electricity into the grid, despite the fact they produce power about 24% more cheaply.

The plan guarantees the government electrical utility a market share of “at least” 54%, even though the U.S.-Mexico-Canada free trade pact prohibits favoring local or government businesses.