Mexican president plans renegotiation of power industry contracts

MEXICO CITY (Reuters) - Buoyed by a new law, Mexico’s president on Wednesday said he would renegotiate contracts in the electricity sector, heralding fresh tensions between his government and the private sector, which he accused of excessive profiteering.

FILE PHOTO: A general view shows high voltage power lines owned by Mexico's state-run electric utility known as the Federal Electricity Commission (CFE), in Santa Catarina, on the outskirts of Monterrey, Mexico February 9, 2021. REUTERS/Daniel Becerril

President Andres Manuel Lopez Obrador said the contracts encompassed Spain’s Iberdrola and about 10 other firms in Mexico’s power industry, rules for which Congress just voted to change under legislation that he has championed.

Arguing Mexico had been taken advantage of as a “land of conquest,” the leftist leader said companies would still be welcome to invest for “reasonable profits.”

“We’re going to look for agreements in the sense that we want to keep having contracts, but we need to get up-to-date with the new reality,” he told a regular news conference.

“That’s not just the new economic reality, it’s the new political reality,” he added. “We’re no longer in a time where politicians are at the service of companies.”

When asked how much money was at stake, Lopez Obrador said a “general calculation” had been made that state electricity firm the Comision Federal de Electricidad (CFE) had paid “around 300 billion pesos ($14.3 billion) too much for those contracts.”

On Tuesday evening, the Senate passed the new law that strengthens the rights of the CFE over private operators.

Investors appeared unimpressed, with the peso dropping over 1.5% against the dollar, a steeper fall than that seen by other currencies in Latin America.

Lopez Obrador has previously rattled investors by taking on private sector interests, notably a decision to cancel a new Mexico City airport in late 2018.

The president said Mexico needed private investment to make progress, but warned against companies thinking they could come “to make a killing,” arguing that industry profits in the country were out of proportion compared to Spain.

“We’re not against business people, we’re against corruption,” he said. “They can continue to do business, legally, without bribes, and with reasonable profits.”

The new power legislation opens the door to renegotiating and potentially terminating contracts with independent producers, and could encourage a raft of lawsuits.

It also aims to prioritize the CFE in energy dispatch and scrap its obligation to buy electricity through auctions.

Lopez Obrador is gradually rolling back a reform passed under the previous administration that he argued was too generous in opening up the energy market to private capital.

($1 = 20.9400 Mexican pesos)

Reporting by Dave Graham; Editing by Frank Jack Daniel and Jonathan Oatis