Mexico’s Sheinbaum to Expand Federal Control Over Energy Giants

(Bloomberg) -- Mexican President Claudia Sheinbaum would gain increased control over Pemex and the national electricity utility under legislation that’s expected to win approval.

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The Chamber of Deputies, Mexico’s lower house of Congress, on Wednesday began discussions on reclassifying Petroleos Mexicanos and Comision Federal de Electricidad from “state productive companies” to “public companies.” The change would force the companies to prioritize the government’s social and economic objectives over corporate profits.

The reclassification was initially proposed by Sheinbaum’s mentor and predecessor, ex-President Andrés Manuel López Obrador, and is expected to win approval from the ruling coalition’s decisive majority in the chamber.

The bill seeks to ensure that Pemex and CFE make decisions that are aligned with the interests of Mexico’s government rather than the private sector, Energy Minister Luz Elena González said during the president’s daily press conference on Wednesday.

The change would guarantee the government controls 54% of domestic electricity supplies, with the remainder managed by private companies. “The participation of the private sector will be carried out with clear investment rules,” González said.

The discussion of the bill in the lower house will be long and complicated because energy is a hot-button issue for Mexican lawmakers, said Ricardo Monreal, leader of the ruling Morena party in the chamber.

State-owned companies should not have an advantage in the energy sector and should aim for profitability and competitiveness, opposition lawmaker Claudia Ruiz Massieu Salinas of the Movimiento Ciudadano party, said during the debate.

She added that prioritizing Pemex over private companies will hinder the transition away from fossil fuels.

“You are going to constitutionalize an inefficient, uncertain, expensive and polluting system, with an incalculable cost for the country, for everyone’s quality of life,” she said.

The legislation also would eliminate lithium concessions and reserve the sector for the national government.

During the Lopez Obrador administration, Pemex received capital injections and tax relief totaling as much as $80 billion to cope with the heaviest debt load among major oil companies. That support did little to revive crude production that has been dropping for most of the past 20 years.

“Of course we want Pemex and CFE to be productive, but in reality they put them in competition with private companies,” Sheinbaum said during the press conference. “Then these companies are not governed by public laws but by mercantile laws.”

Jesus Carrillo, director of economics at the Mexican Institute for Competitiveness, said the reclassification to “public companies” implies that both Pemex and CFE won’t be required to operate at a profit. “President Sheinbaum has already said that service will be their driver,” he said.

Carrillo added that the bill could also limit the possibility for the CFE to collaborate with private companies in the construction of electricity transmission lines, something that is necessary for Mexico if it wants to facilitate so-called nearshoring.

If approved by the lower house, the bill goes to the Senate, where the ruling coalition only needs one more vote to reach the two-thirds majority necessary to pass such a constitutional change.

Mexico’s Supreme Court in February voided a power reform proposed by López Obrador and approved by Congress that would have given CFE priority over private companies in dispatching electricity — the same goal included in the current proposal. The court said then that the law “violates the principles of competition.”

AMLO, as the former president is known, sought to strengthen Mexico’s state energy producers and reverse pro-business legislation passed by the prior administration, arguing his predecessors had signed unfair deals.

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