AMLO’s energy reform endangers not only FDI but Mexico’s democracy itself

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Through new legislation, omissions or decrees, thus far, AMLO has been able to postpone upstream auctions for oil and gas, as well as farm-outs from the state-owned oil company Pemex, he has closed a fuel storage terminal owned by private equity firm KKR, attacked companies operating in the midstream business, and canceled fuel import licenses as well as long-term power auctions that promoted clean electric plants.

He has renegotiated contracts with natural gas pipeline developers and modified electricity sector laws to give priority to Mexico’s state-owned power utility Comisión Federal de Electricidad (CFE) over private power producers in the dispatch of electricity.

It’s inarguable that the 2013 energy reforms were “locked into” the United States–Mexico–Canada Agreement, said former U.S. Trade Representative Robert Lighthizer on a Center for Strategic and International Studies Mexico Matters podcast. The new reform “is a clear violation of the agreement,” he said.

Even if a watered-down version of AMLO’s proposal is approved, Mexico would be in breach of USMCA; the damage to North American energy security and competitiveness, to private investors, and to a nascent renewable energy industry would be enormous. 

The United States is not only Mexico’s top source of foreign direct investment, with $101.1 billion in 2020. Mexico is also the largest export market for U.S. refined petroleum products and natural gas. Mexico is the United States’ second-largest merchandise trade partner, after China.

A significant portion of this trade occurs in the context of production sharing, as manufacturers in each country work together to create goods. If AMLO’s laws are passed, U.S. automotive, aerospace, medical device, and electronics manufacturers, among others operating in Mexico, will have to rely on a state monopoly for dirtier, more expensive, and less reliable electricity. And the U.S. government will have to find another substitute for oil imports as AMLO aims to halt crude exports by 2023 to expand homegrown production of gasoline and diesel. 

Source: WSJ

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