February 4, 2023

Volume XIII, Number 35

Error message

  • Warning: Undefined variable $settings in include_once() (line 135 of /var/www/html/docroot/sites/default/settings.php).
  • Warning: Trying to access array offset on value of type null in include_once() (line 135 of /var/www/html/docroot/sites/default/settings.php).
Advertisement

February 03, 2023

Subscribe to Latest Legal News and Analysis

February 02, 2023

Subscribe to Latest Legal News and Analysis

Mexico’s Antitrust Commission Recommends That Congress Not Pass Constitutional Reform in Electricity Sector Due to Competition Concerns

Last year, Mexican President Andrés Manuel López Obrador submitted to the Mexican Congress a bill to amend a number of constitutional articles related to certain energy matters (the “Bill”). If approved, the Bill would undo the 2013 Constitutional Reforms to the energy sector (the “2013 Energy Reform”) and the 1992 legal reforms, completely overhauling the current state of the electric industry, hindering domestic and international private sector participation. The Bill would also affect the hydrocarbon and mining industries in the country.  

Under the Bill, the Comisión Federal de Electricidad (CFE) (Mexico’s utility company) would in essence become again the exclusive supplier of electricity to end consumers. The Bill would also create a monopsony (sole buyer) by making CFE the only entity able to purchase wholesale electricity. The private investors owning power generation facilities would thus be forced to sell electricity to CFE under conditions to be defined by CFE.  For further information on the content of this Bill, please click here.

Recently, the Mexican Antitrust Commission (Cofece) issued an opinion to the Mexican Congress recommending against approving the Bill due to serious competition concerns. Cofece concludes that the Bill would:

  1. Eliminate competition in the electric industry which has allowed consumers to secure electricity rates at a lower cost;

  2. Remove the regulatory mechanisms that allow for the efficient performance of the industry;

  3. Result in an increase to electricity rates, harming industrial and small consumers1;

  4. Impact public finances by increasing the amount of subsidies paid by the Mexican government to small consumers; and

  5. Undo the institutional framework that protects public interest by transferring to CFE certain regulatory and public policy tasks, including the control and planning of the electricity system, as well as the determination of rates.

Cofece also raised concerns that the Bill will drastically affect the competition model created for the power generation and commercialization sectors under the 2013 Energy Reform, by reverting to a vertically integrated model operated by a non-regulated State monopoly. This model has been abandoned in many countries due to its inefficiency, inability to meet demand, high costs, and negative impact on public finances.

Cofece also stated in its opinion, that the Bill contemplates the cancellation of all existing generation permits and electricity purchase and sale contracts with the private sector, which would translate into a restriction of supply, idleness of assets, and greater disincentives for investments. Although proponents of the Bill foresee that private parties will be able to generate “up to” 46 percent of the energy required by the country, this generation would only be for sale to the CFE and under the thresholds, terms and conditions —still unknown— determined by CFE, which turns CFE into a monopsony in the purchase of wholesale electricity.

ENDNOTE

1 Small consumers defined as those whose demand is less than 1MW

© 2023 Foley & Lardner LLPNational Law Review, Volume XII, Number 105
Advertisement
Advertisement
Advertisement

About this Author

Roberto Arena Reyes Retana, Foley Lardner Law Firm, Mexico, Insurance and Energy Law Attorney
Partner

Roberto Arena is a trusted advisor for businesses in the energy, insurance, electricity, financial, and oil and gas sectors, including many public companies with an interest in international tax planning and inbound and outbound international business transactions. He often handles sophisticated interpretation of treaties to avoid double taxation, large-scale mergers and acquisitions, real estate litigation, corporate organizations and reorganizations, and multi-jurisdictional litigation-related matters.

Roberto is the founding partner of the...

5255-5284-8542
David Berezowsky Finance Practice Mexico City Lawyers Foley & Lardner
Of Counsel

David Berezowsky is a business lawyer and an of counsel with Foley & Lardner LLP. David is based in the firm’s Mexico City office where he is a member of the firm’s Finance Practice. His areas of practice cover a broad range of business and financial matters including, renewable energy, project finance, infrastructure projects, government procurement projects, mergers and acquisitions, joint ventures, life sciences, and administrative litigation.

David’s experience in renewable energy and project finance includes representing developers and investors in the construction,...

011-52-555-284-8540
Marco Antonio Najera Martinez, Foley Lardner, Litigation lawyer
Partner

Marco Najera Martinez is a recognized go-to transactional and regulatory lawyer representing global companies doing business in Mexico. With particular experience in the Mexico antitrust laws, he represents Fortune 500 corporations, as well as Mexico companies, in this highly specialized area. Marco’s clients comprise many sectors, including financial services, insurance, energy, health care and real estate, and they rely on him for mergers and acquisitions, as well as a full range of corporate, project financing, compliance and regulatory matters.

Marco has a deep understanding of...

52 55 5284 8545
Advertisement
Advertisement
Advertisement