Gas stations: The energy sector in Mexico views the increase in CRE permits with caution during the TMEC consultations

Gas stations: The energy sector in Mexico views the increase in CRE permits with caution during the TMEC consultations

It is one of the points that the United States and Canada have claimed from Mexico: since the arrival of President Andrés Manuel López Obrador, the permits that private companies need to operate in the country have been paralyzed. Foreign companies have complained in recent years that they do not receive a response from the Energy Regulatory Commission (CRE), despite meeting all the requirements. But in recent months, and since the governments of the partner countries of the TMEC trade agreement have initiated formal proceedings against Mexico, there has been a notable jump in the number of permits granted.

In mid-2020, López Obrador sent a memorandum to the energy sector regulators in which he explicitly requests, among other actions, “to stop the granting of permits or concessions to individuals in the energy sector due to an oversupply of oil and electricity for the medium and long-term,” according to the document. That year, the CRE granted 114 permits and the following year, 115. So far this year, however, more than 400 have been approved, the majority as of September.

“It cannot be a coincidence,” says José María Lujambio, lawyer and director of the energy section at Cacheaux, Cavazos & Newton, about the increase in permits and that this has coincided with the consultation process that the US and Canada began to end of july. The paralysis of the permits is one of the four complaints from the governments of the two neighboring countries, explains the specialist, and it is one that was expected from the beginning to have a political solution. “Apparently there was a political will not to act,” says Lujambio, who was also a CRE official, “and now, apparently, things have changed, and I have no doubt that the Ministry of Economy will have spoken to the Secretariat of Energy and it decided to release pressure on that pot”.

Under the current Administration, the CRE has been weakened on several fronts. The orders that the president issued directly through that memorandum violated the autonomy of the institution. In addition, López Obrador has attacked regulators such as the CRE on several occasions, assuring that the institution was created under previous administrations to defend private interests. As part of his austerity plan, the president cut his budget, which is why many of his employees left since 2019 and many others did so in protest of the meddling of the Executive branch.

“There is an overwhelming majority of permits for Pemex (Petróleos Mexicanos), although permits have also been granted to other companies,” says Eduardo Prud’Homme, who was a CRE official for 14 years and is currently a consultant specializing in energy matters at the Gadex signature. “There is a clear bias to favor state companies, but there has also been a significant loss of talent in the CRE, which is why their response capacity has been diminished,” says the specialist, “they are overwhelmed, and they have to be discretionary in the dispatch of matters, priority is given to projects that impact Pemex and CFE (Federal Electricity Commission)”.

There is also an internal political explanation of the CRE, points out Prud’Homme. The president commissioner, Leopoldo Vicente Melhi, ends his term on the last day of the year, which has generated divisions within the Commission among those who wanted to replace him. Commissioners may be getting a lot more work done in an attempt to stand out.

For his part, Lujambio assures that the supposed ambition of the Secretary of Energy, Rocío Nahle, for being governor of the State of Veracruz, has generated expectations in the private sector that a new secretary may have greater openness to resolve the international trade dispute. The possibility that it will not be resolved in the consultation stage and that a dispute panel will rule against Mexico is scaring away foreign investment, according to the National Council of the Maquiladora Industry. A panel could allow the US and Canada to impose tariffs on the products that Mexico exports the most.

“Honestly, I see it as very difficult for it not to make it to the panel,” says David Enríquez, a lawyer specializing in energy law at the firm Goodrich Riquelme y Asociados. According to his analysis, there are two currents in the US around the TMEC dispute: on the one hand, there is the Office of Commercial Representation (USTR), which is willing to be tough with Mexico, and, on the other, the other, are the Foreign Relations officials, who want to take care of the relationship with Mexico because it is so complex. “They want to go slowly because they don’t want to contaminate such a complicated relationship on immigration and security issues,” says Enríquez.

One of the four points to be resolved could be in the hands of collegiate courts. López Obrador’s initiative, which reformed the Electricity Industry Law to give preference to the state company, led several companies to process more than 200 amparos to prevent its implementation. In October, the Supreme Court of Justice resumed the study of said protections, so if the Court rules in favor of the private companies, this point of the trade dispute with the US and Canada would be resolved.

“I don’t expect a major shift in energy policy, that’s hardly going to happen,” says Oscar Ocampo, an energy sector analyst and researcher for the nonprofit Mexican Institute for Competitiveness (IMCO). But recent announcements by the CFE, including new contracts with US and Canadian companies for power parks and natural gas liquefaction terminals, point to a possible opening by government officials. “There is a better outlook, not in the short term, but perhaps in the medium term. Regardless of the CRE, there are reasons for some optimism even when it has not been reflected in concrete actions”.

The TMEC consultations have not radically influenced the sector, says Lujambio, “but they have lit a candle of hope that the pressure from the US and Canada will lead the Mexican government to back down, at least, that part of energy policy. In something he will end up giving in to the Mexican government ”.

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