Mex production

Mexico President Andrés Manuel López Obrador said during his Thursday morning press conference his government would continue to respect oil and gas laws and existing contracts in the country.

He added, however, that if he were somehow unable to “rescue” national oil company Petróleos Mexicanos (Pemex) and state electricity firm Comisión Federal de Electricidad (CFE), his administration would then push for a reform of the Constitution to undo changes made during the previous administration that opened the energy sector to private participation for the first time in 70 years.

The president, who often goes by his nickname AMLO, reiterated that if this were the case he would only try to make the changes after next year’s midterm elections.

“It would be irresponsible of me not to do so,” López Obrador said. “I don’t want the energy sector to be privatized because if we don’t have economic independence, if we don’t have energy independence, we can’t guarantee our sovereignty as an independent and free country.

“I’m convinced that privatizations have been a failure, juicy deals, theft, robbery of the resources of Mexico… only in the benefit of private companies.”

He spoke at length on the topic in response to questions regarding revelations that energy regulators in Mexico have agreed to follow his requests to strengthen Pemex and CFE as set out in a July presidential memorandum.

Officials from Comisión Nacional de Hidrocarburos (CNH), Comisión Reguladora de Energía (CRE), Centro Nacional de Control del Gas Natural (Cenagas), Centro Nacional de Control de Energía (CENACE) and Agencia de Seguridad, Energía y Ambiente (ASEA) were said to have endorsed the memorandum’s main points on Tuesday.

On Wednesday, news emerged that CENACE head Alfonso Morcos Flores, appointed by López Obrador in December 2018, had tendered his resignation. He is being replaced by Carlos Gonzalo Meléndez Roman, a sub-director of strategy and regulation at CFE. 

The president said the resignation was being overblown in the press and had to do with different ideas on the distribution of power dispatch.

The memorandum lays out a list of 17 objectives that include freezing gasoline, diesel, gas and electricity prices; ceasing oil exports; achieving oil production of 1.8 million b/d in 2020 and 2.2 million b/d by 2024; and perhaps most controversially, giving CFE-owned power plants priority in the dispatch order.

Mexico’s supreme court has sided in favor of private companies in new power sector rules favoring CFE. Undoing the energy reform is also an unlikely possibility at this stage.

A counter reform would require a 66% majority in both houses of congress. López Obrador’s ruling Morena party has 60% of the seats in the senate. Next year’s midterm elections will see the entire lower house renewed, where the Morena coalition controls 65% of seats.

Despite this grip on congress, the president’s popularity has dipped to below 60% from 80% in his first few months as he faces criticism for a shambolic response to the coronavirus. Mexico has so far seen over 70,000 deaths from the coronavirus and is mired in a historic and crippling recession.

There are other safeguards for energy investors in place.

Mexico can change the constitution under the newly signed United States-Canada-Mexico Agreement, aka the USMCA, but investor protections were strengthened in comparison to the original North American Free Trade Agreement, and López Obrador has been very vocal about the importance of the USMCA to jobs and an economic turnaround in Mexico.

The president said in the press conference that so far “we are going well with Pemex and CFE” and if things continued apace there would be no need to change the Constitution during his sole six-year term.

“Fortunately, foreign companies are understanding that there is a change in the country and they are helping us so that our relationship is different,” he said. “They don’t see the government as corrupt anymore, that bribes are going to happen in our country.”