“Muy bien, Ken,” Mexican President Andrés Manuel López Obrador crowed at a Friday press conference in Mexico City. He was congratulating U.S. Ambassador Ken Salazar for contradicting the Biden administration as the American diplomat finished a visit to Mexico’s Chamber of Deputies the day before.
There’s no way to overstate Mr. Salazar’s bad judgment. At issue are constitutional reforms to Mexico’s energy laws, proposed in September by AMLO—as the president is known—and pending approval in the Mexican Congress. The reforms directly contravene the country’s commitments under the U.S.-Mexico-Canada Agreement to guarantee open, competitive markets and equal treatment of all parties, foreign and domestic.
Energy Secretary Jennifer Granholm traveled to Mexico City last month to discuss bilateral issues with Mr. López Obrador. After the meeting Mexican Energy Minister Rocio Nahle told the press that the U.S. had expressed no concerns about the energy reform.
Ms. Granholm recalled a much different conversation. In a statement after the meeting, she said her side had “expressly conveyed . . . real concerns with the potential negative impact of Mexico’s proposed energy reforms on U.S. private investment.” She said that they “could also hinder U.S.-Mexico joint efforts on clean energy and climate.” Ms. Granholm didn’t mention the 2020 USMCA. But she alluded to its importance when she added: “We must maintain and enhance open and competitive energy markets that bring benefit to North America.”
Those comments grabbed headlines in Mexico because AMLO has insisted since last year that the U.S. doesn’t object to his proposed reforms. Ms. Granholm’s visit and statement settled the matter—until Mr. Salazar decided to take AMLO’s side, telling reporters on Thursday that Mr. López Obrador “is right” to seek changes to the 2013 laws that opened the country’s energy market. He took to Twitter Friday to walk back his comment, but the damage was done.
The reform would force private electricity generators to sell to the state-owned Federal Electricity Commission, which would set prices as the only buyer and control dispatch to all consumers, giving it 100% market power. The percentage of electricity that may be generated by nonstate companies would be capped. The commission would become both an autonomous government entity with no oversight and the electricity regulator in charge of planning and controlling the industry.
Mexico’s energy regulatory commission—which issues permits—and the national hydrocarbons commission were both established as independent bodies to ensure market competition and nondiscrimination. The reform would eliminate both and move their work to the Ministry of Energy. This would create a giant conflict of interest, since the energy minister is also chairman of the state-owned Petróleos Mexicanos, or Pemex.
With equal treatment under the law for investors no longer guaranteed, capital would dry up. But that’s no matter for AMLO. His goal is to consolidate power so the government can centrally plan and control Mexico’s energy industry and the economy that relies on it.
Mexico argues that the USMCA allows it to carve out exceptions for “national security.” But it’s difficult to make the case that protecting the nation calls for discriminating against private investors in electricity generation. Sovereignty over energy doesn’t give Mexico the right to tilt the playing field against nonstate investors.
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