Canadian ATCO cedes gas pipeline in Hidalgo to Mexico after obtaining compensation

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Canada’s ATCO has agreed to transfer ownership of an unfinished gas pipeline to Mexico that was embroiled in a dispute with the Federal Electricity Commission, two officials told Reuters, marking an unusual development in current tensions over the energy sector.

Reuters reported in October that the CFE had to pay ATCO some $100 million in damages, interest and legal fees in 2021 for the Ramal Tula gas pipeline in the state of Hidalgo.

The agreement to deliver the pipeline will release ATCO from liability and give President Andrés Manuel López Obrador the opportunity to finish the stalled project that was designed to supply natural gas to a power plant north of Mexico City, sources said.

Three people familiar with the matter said the deal to hand over the project came after López Obrador met Canadian Prime Minister Justin Trudeau in January, who used their talks to raise the concerns of Canadian energy companies in Mexico.

López Obrador later met with representatives of Canadian energy companies, including ATCO, and details of the transfer were finalized in late February, one of the sources said. There was no payment involved in the transfer, two of them said.

The win-win deal stands in completely contrast to unresolved dispute talks centered on López Obrador’s energy policies, which have pitted the United States and Canada against Mexico.

ATCO said, they won’t disclosing the terms of the deal. “Together with the CFE we agreed that this was the best way to see the project completed,” the Canadian company said in a statement. “ATCO remains committed to Mexico and its communities and will continue to own and operate its current power generation assets and modular structures business.”

Neither the CFE nor the Canadian government nor López Obrador’s office responded to requests for comment.

Arguing that previous governments skewed the Mexican energy market in favor of private capital, López Obrador has taken a series of measures to reinforce state control of the sector.

However, US and Canadian companies argue that their measures put them at a disadvantage and breach a US trade agreement. In July, the governments of the United States and Canada began formal energy dispute resolution talks with Mexico.

ATCO went to arbitration because after López Obrador took office in 2018, the CFE canceled a contract that the Calgary-based company made with the previous administration to build the pipeline, arguing that the work was incomplete, reported Reuters.

By then, ATCO had already completed most of the 17-kilometre pipeline. However, the Canadian company said it could not complete the final stretch due to resistance from local communities and invoked mayor force.

The company argued that Mexico had not done enough to allow the pipeline to be completed, and the London Court of International Arbitration agreed with it, the sources said. Mexico paid in December 2021, according to people familiar with the matter.

The previous government in Mexico initially valued the Ramal Tula project at $66 million when the contract was awarded in 2014.

Source: El Economista