Mexico's Fox serves up new electricity reform proposal

Jan. 24, 2002
Mexican President Vicente Fox has put electricity reform back on the national agenda with a proposal that is not so far reaching as his predecessor's. Industry observers are hopeful it will be more palatable to opponents.

Kate Thomas
OGJ Online

HOUSTON, Jan 24 -- Mexican President Vicente Fox has put electricity reform back on the national agenda with a proposal that is not so far reaching as his predecessor's, and industry observers are hopeful it will be more palatable to opponents.

Fox's proposal would not require Mexico's state-owned electricity companies to sell off their generation and transmission assets, a key component of former President Ernesto Zedillo's failed plan. Fox would permit Comision Federal de Electricidad (CFE) and Compania de Luz y Fuerza del Centro (LFC) to keep their transmission system and existing generation but would terminate their monopoly over future generation and possibly distribution projects, said Jorge Cervantes Trejo, a partner in the Mexican law firm Gonzalez Calvillo y Forastieri SC.

Speaking in Houston at a seminar sponsored by Fulbright & Jaworski LLP, Cervantes Trejo said the toughest task will getting the two-thirds approval required in the House for a constitutional amendment. Without a National Action Party (PAN) majority in the Mexican Congress, winning support for electricity reform will require hard bargaining by Fox, Cervantes Trejo said.

Opposition parties haven't introduced alternatives, Cervantes Trejo said, but have generally rejected the idea of amending the constitution to allow more private participation in the electric industry. "Fox has to contend with these two parties and convince them of the need," he said.

Cervantes Trejo said the House could take up the measure during the March-April session but consideration could well be delayed until the fall session. "If it's not approved, Fox could wait until 2003 elections," Cervantes Trejo said. "If he gets a majority, he won't have to deal with PRI and PRD [opposition parties]."

He said Fox needs the legislation so that money saved from building new generating capacity can be used on health care, education, and other social programs. "He will do anything within his reach to get it," Cervantes Trejo said. If the constitutional amendment is passed, enabling legislation also would be required.

If the PAN scheme is passed as proposed, Cevantes Trejo said private investors could build power plants and sell the output to distributors, major users, or resellers. He said it's also possible private investors could acquire a participation in a generating company owned by CFE or LFC, although the conditions have not been spelled out. It is also unclear how prices will be set.

As for distribution, the PAN reform proposal would split CFE and LFC into several state-owned distribution companies and divide their distribution grids among these new companies. Cervantes Trejo said the expectation is that these companies would be able to buy power from a free and competitive market. Distributors who lower prices would receive incentives, he said.

Mexican officials have estimated the country will need an additional 32,300 Mw of capacity by 2010, which will require expenditures of about $5 billion/year. Almost 40% of total public investment in infrastructure is directed to Mexican energy projects.

Presently, Mexico permits the private sector to self supply, cogenerate, or build plants and sell the output exclusively to CFE. Cervantes Trejo said self supply and cogeneration projects account for about 7,201 Mw/year and independent projects generate another 8,212 Mw/year, representing an investment of about $3.8 billion. Mexico also expects more cross-border activity in the future, he said, with the possible addition of three to four interconnection points between the US and Mexico.

In 2000, CFE exported about 75 Gw-hr to California and 261 Gw-hr to Texas. Private plant owners also exported power to California. To date, Mexico has awarded export licenses to Energia de Mexicali, Energia Azteca X, Termoelectrica de Mexicali, Energia de Baja California, and AES Rosarito, a unit of AES Corp., and eight import licenses to electricity users. Imported power cannot be resold under Mexican law.