AMLO electricity reform initiative violates USMCA, Mexico must withdraw it


For the Chamber, “drastic changes like these can open the door for the reinstatement of a monopoly in the electricity sector”

For the United States Chamber of Commerce (USChamber), the government of Mexico must withdraw the electricity reform initiative because it creates monopolies and violates the USMCA.

In a statement made by the Chamber’s senior vice president for the Americas, Neil Herrington, he stated: “to call on the Mexican government to withdraw this proposal and find tangible solutions with the private sector for the development of the industry.”

Five days after the Executive presented a reform proposal to the Electricity Industry Law in which he proposed to give more space to the energy produced by the Federal Electricity Commission, Herrington said: “The electricity reform initiative that was presented to Congress Mexican this week is deeply worrying. “

He added that “unfortunately this fact is the latest in a pattern of worrying decisions that have been made by the Mexican government that has diminished investor confidence in the country, at a time when Mexico needs to attract more investment.”

He explained that for developing countries like ours that are in the worst crisis after the Great Depression the most important thing to generate jobs and achieve recovery is to attract investment.

For the Chamber, “drastic changes like these can open the door for the reinstatement of a monopoly in the electricity sector and, we can believe, can directly contravene Mexico’s commitments in the Agreement between Mexico, the United States and Canada (USMCA).

Resultado de imagen de Iniciativa eléctrica de AMLO viola el T-MEC: Cámara de Comercio de EU

Furthermore, these modifications can cause an increase in electricity costs and limit access to clean energy for the population.

“Unfortunately, this event is the latest in the pattern of problematic decisions that have been made by the Mexican government that has come to diminish investor confidence in the country, at a time when Mexico needs to attract more investment,” said the senior vice president of the US-Chamber in a statement.

Resultado de imagen de Iniciativa eléctrica de AMLO viola el T-MEC: Cámara de Comercio de EU

AMLO initiative to reform electricity industry will incite lawsuits

Peña Nieto anticipated a three-way carom

President López Obrador presented to the Congress of the Union a preferential initiative to modify the Electricity Industry Law approved in the energy reform, thereby seeking to give priority to that produced by the state through the Federal Electricity Commission (CFE). 

“The initiative to reform the Electricity Industry Law is contrary to Mexico’s commitments in the trade agreement with  Canada and the United States and other treaties, and goes against the competition in the electricity sector,” said Kenneth Smith Ramos,  who was part of the USMCA negotiating group. 

In addition to wreaking havoc on the environment, he asked to reconsider and avoid a three-way carom, he added. 
“Our business partners will surely use the TMEC dispute resolution mechanisms, in addition to the fact that affected companies can initiate investor-state cases against  Mexico.

We are talking about hundreds of millions of dollars in possible retaliation,” added the economist. . It will set a “dangerous precedent” for investments in the country by threatening legal certainty and the rule of law, signed by the Mexican Institute for Competitiveness (IMCO) and it goes against the constitutional provisions in force promulgated during the Peña administration Grandson, they added. 

Deputy Ignacio Mier Velazco defended AMLO’s initiative  because “the rescue of a company as important  to our country as the Federal Electricity Commission is in the process.”  “What we want is not to undermine investment,  simply to intervene in this reform and we are going to do it in compliance with the law,” he said. 

“It is false that in the transitory they are attacks against the investment.  It is simply to adjust this to clear, equitable conditions, that redounds to the benefit of consumers and that does not threaten the patrimony in unfair conditions of competition,” added the coordinator of Morena and President of the Political Coordination  Board in the Chamber of Deputies. 

Reform to the electricity Law will cost 20 billion dollars 

The reform of the Electricity Industry law promoted by the government of President Andrés Manuel López Obrador could have a cost of almost 20,000 million dollars to the Mexican State since it is the amount to which investments committed in electrical projects amount under current legislation and that it would be necessary to compensate because its profitability would be diminished or diluted by the change in the rules of the game to favor the Federal Electricity Commission  (CFE).  

According to Víctor Ramírez Cabrera, from the Mexico Climate and Energy Platform, the cost of the expected income from investments of only the equivalent of 90% of the infrastructure already contracted by the CFE in the three long-term auctions that were held last six-year period, It amounts to 16,783 million dollars. 

But this sum would rise to 18,313 million dollars if the contractors also request compensation for the surplus energy that they did not contract with the CFE and that, as established by the auction rules, left ready to participate in the short and medium-term market trading with buyers other than the CFE.  

In addition, there are other investment projects that the previous legacy contracts of the pre-reform regime allowed to prepare calculations and seek financing for power generation companies, and if they were to leave it idle, they will seek compensation or initiate lawsuits in international courts. 

The reform to the Electricity Industry law proposed by the Mexican Executive would violate the commitments of this country in the  Comprehensive and Progressive Treaty of Trans-Pacific Partnership (TIPAT) and the Treaty between Mexico, the United States, and Canada (USMCA), he said.  Juan Antonio Dorantes, managing partner of the consulting firm Dorantes  Advisors. 

Both trade agreements include the so-called “ratchet” clause of irreversibility: if a country proceeds unilaterally to an opening, it is immediately consolidated. 

This leads to constant liberalization, with continuous bindings in various sectors. 

But even apart from this, the same protection is in force in different Agreements for the Promotion and Reciprocal Protection of  Investments (APPRIs), several of them between Mexico and European countries.

Dorantes specified that in the TIPAT Energy Chapter,  signed in February 2016, Mexico committed to maintaining the level of openness that was in effect at that time. “This involved a photograph of Mexico’s energy reform,”  said Dorantes, referring to the fact that the TIPAT reproduced the commitments of Mexican legislation. 

Likewise, the USMCA chapter on State-Owned Companies and  Designated Monopolies prevents giving favorable treatment to this type of company, a provision that was negotiated mainly with the intention of targeting nations such as Malaysia and Vietnam. 

This agreement stipulates that any domestic advantage related to international trade and investment must extend to the United States and Canada. 

Dorantes stressed that, if any of these treaties are violated,  companies can resort to Investor-State dispute resolution panels, in which cases if Mexico loses it would have to compensate the affected companies. But even more serious, if State-State panels are raised and Mexico loses, the affected countries would have the right to retaliate. 

Legal threats In addition to being surprising, the initiative to reform the Electricity Industry law  suffers from different legal weaknesses, among  which the CCE lists:

-Opens the doors to an indirect expropriation of private plants by changing the legal framework to create a monopoly for the  CFE in the dispatch of electricity. In addition to violating the guarantee of free competition and competition.

-Attention against the commitments acquired under international treaties, both in commercial agreements and in the protection of investments and the environment. This will cause the affected companies to initiate panel and arbitration processes.

-It violates the non-retroactivity of the law since no rule can be retroactively enforced to the detriment of an individual. This will have a high impact on investments already made, so it will involve State compensation.

-It violates the guarantees of legal certainty, due process, and public procurement. It would unilaterally modify the rights of individuals to renegotiate or terminate public contracts early.


Mexico Daily Post