One step forward and two steps back: Mexico is skipping with energy reforms

Former President Peña’s 2013 energy reform sought to drive energy prices down by opening up the energy sector to private investment, reducing greenhouse emissions in the process. Now President Obrador’s reform has effectively change the rules of the electricity market to favour the power plants of the state- owned CFE, limiting free market competition and affecting both national and foreign investments in the process.

Broadly speaking, the 2021 constitutional electricity reform has: (i) changed grid dispatch rules which results in benefits to state-owned power plants; (ii) limited free competition and open access principles by qualifying generation and commercialisation permits, subject to unclear criteria of the Mexican government; (iii) eliminated CFE’s obligation to acquire energy through power auctions; (iv) facilitated access of Clean Green Certificates to the oldest CFE power plants; (v) instructed Mexico’s Energy Regulatory Commission to revoke self-supply generation permits, alleging they were obtained in “violation of the law”; and (vi) ordered a review of all power-purchase agreements entered by CFE with independent suppliers to review whether they should be renegotiated or terminated.

If the 2013 reform represented a step towards an energy sector open to the free market and clean energy, the 2021 reform took a leap backwards by returning the generation and commercialisation of energy to the yoke of the state, thus evoking state policy implemented in Mexico during the 1970s, with all that that entails.

This reform has strong implications on Pemex's tax regime and on the private sector. This is why it is of utmost importance that all foreign companies that have an investment or co-investment in Mexico within the energy sector review their tax projections, as well as the corresponding impact that this reform will have.

---

Photo: SantiagoNavarroF - stock.adobe.com