Mexico's president defiant in row with Canada over pipeline contracts

MEXICO CITY (Reuters) - Mexican President Andres Manuel Lopez Obrador pushed backed on Thursday against Canadian concerns that gas pipeline contracts awarded under his predecessor might not be honored, saying the terms of the agreements were “abusive” toward the state.

FILE PHOTO: Mexico's President Andres Manuel Lopez Obrador takes part in a "unity" rally to defend the dignity of Mexico and talk about the trade negotiations with the U.S., in Tijuana, Mexico June 8, 2019. REUTERS/Jorge Duenes/File Photo

Mexican state power utility CFE [COMFEL.UL] said this week it would negotiate a "fairer" resolution to contractual disputes over several pipelines being built by companies including Mexico's IEnova IENOVA.MX and Canada's TC Energy Corp TRP.TO.

The Canadian ambassador to Mexico, Pierre Alarie, wrote on Twitter on Wednesday that the Mexican government appears “not to wish to respect natural gas pipeline contracts,” and said he was deeply concerned about the signal being sent.

Lopez Obrador, who in February vowed the contracts would be honored, said it was natural for Alarie to defend Canada’s interests but took a defiant stance when asked about the dispute during his regular morning press conference.

“Here it was stated that those contracts were abusive. I called them unfair contracts because they were handed over with all the benefits for the companies,” Lopez Obrador said, arguing that their terms would lead to the ruin of the CFE.

“A deal will be reached because we too have to defend the assets and the interests of the Mexican people,” he added.

The row has revived concerns that Lopez Obrador’s government could put in jeopardy contracts signed under previous administrations, the last six of which the president has characterized as part of a corrupt “neo-liberal” era.

He has been highly critical of the government of predecessor Enrique Pena Nieto, who sought to lift economic growth by opening up the energy sector to private capital, an approach that Lopez Obrador has so far roundly rejected.

IEnova, a unit of U.S.-based Sempra Energy, says the CFE is seeking arbitration over a contract it signed in partnership with TC Energy to build a $2.5 billion pipeline from Texas to the Mexican Gulf coast port of Tuxpan.

News of the arbitration request dragged down IEnova’s shares more than 4% on Wednesday. The company’s stock at one point slumped by over 8% on Thursday. Shares in Sempra were down 1.1%, while stock of TC Energy was up slightly.

Paty Mitchell, a spokeswoman for Sempra, said the company was analyzing the content of the arbitration request and its legal basis, reaffirming it was ready to talk to the CFE.

“The arbitration notice should not interfere with the existing contractual conditions,” she said.

A CFE source, speaking on condition of anonymity, said the utility had notified Fermaca, a Mexican infrastructure company building another pipeline, that it was seeking arbitration. Fermaca could not immediately be reached for comment.

Separately, Mexico’s Grupo Carso, an infrastructure firm controlled by billionaire Carlos Slim that also is involved in the pipeline disputes, said in a statement it would analyze an arbitration request it had received from the CFE.

Shares in Carso fell by 2.25%.

Lopez Obrador rejected the suggestion that the spat could interfere with ratification of United States-Mexico-Canada Agreement (USMCA), a new North American trade deal the Mexican Senate approved earlier this month.

Canada and the United States must still ratify USMCA.

Lopez Obrador, who took office in December, alarmed investors by canceling a partly built $13 billion Mexico City airport, arguing that it was riddled with corruption.

Reporting by Dave Graham; additional reporting by Diego Ore and Miguel Angel Gutierrez and Ana Isabel Martinez in Mexico City and Scott DiSavino in New York; editing by Paul Simao, Bill Trott and Lisa Shumaker