Uncertainty over the direction of Mexico’s state oil and power companies continues to build following the abrupt resignation last week of finance minister Carlos Urzúa.
Urzúa, considered a moderate voice in President Andrés Manuel López Obrador’s government, stepped down from his post, citing “discrepancies” over economic policy and conflicts of interest in the administration.
In a resignation letter to the president, Urzúa said that, “in this administration, public policy decisions have been taken without sufficient foundation. I am convinced that all economic policy must be carried out based on evidence … and free of all extremism, whether from the right or left.”
However, Urzúa said, during his time as minister, these convictions were not shared by other officials close to the president.
Urzúa also cited “the imposition of functionaries who do not have knowledge of public finances,” and “influential characters in the current government with a patent conflict of interest.”
In a subsequent interview with the magazine Proceso, Urzúa said that he was referring to López Obrador’s chief of staff, Alfonso Romo who, Urzúa said, “tried to take power of the finance and economy ministries.”
Urzúa also revealed that an ongoing dispute between state power utility Comisión Federal de Electricidad (CFE) and the developers of seven natural gas pipelines also played a major role in his decision to step down.
In particular, Urzúa criticized CFE general director Manuel Bartlett for refusing to allow the Sur de Texas-Tuxpan marine pipeline to operate, and Bartlett’s insistence on renegotiating the terms of CFE’s gas transport capacity contract with the pipeline’s developers, TC Energy Corp. and Infraestructura Energética Nova (IEnova).
By demanding new contract terms and filing an international arbitration complaint against the firms, Bartlett is “literally playing with fire and with the well being of millions of Mexicans who live in the Yucatán Peninsula, where they are already suffering severe blackouts because there is no gas,” Urzúa said.
The conflict over the marine pipeline “will last years and it is very probable that Mexico will lose,” Urzúa said, echoing comments made to NGI’s Mexico GPI last week by Thompson & Knight LLP law firm partner Gabriel Ruiz.
As a result of the marine pipeline dispute, Urzúa said, “we will not be able to use this pipeline for a good while,” although its construction is complete.
Mexico business leaders and energy experts, as well as Canada’s ambassador to Mexico, have publicly criticized CFE for delaying the start of commercial gas flows on the marine pipeline, citing the acute gas shortage faced by the Yucatan peninsula.
Bartlett, in turn, has said that the private sector should not concern itself with the dispute, since the gas that would flow on the pipeline “does not belong to them,” but rather to CFE.
Urzúa said that a few days ago, he and another high-ranking official told López Obrador, “that what the CFE is doing does not benefit Mexico.”
Urzúa also said that he opposed the cancellation of the $13 billion Nuevo Aeropuerto Internacional de México (NAIM), or new Mexico City international airport, as well as the construction of a new oil refinery for national oil company Petróleos Mexicanos (Pemex) in Tabasco state, a project whose necessity, legality, and financial viability have been widely questioned.
He said that Pemex should focus its limited capital budget on exploration and production (E&P), the company’s most profitable activity, which has been the strategy of other state oil companies in Latin America.
Urzúa said he also differed with the administration over Pemex’s long-term business plan, which was due to be published July 15 or 16, according to López Obrador.
The plan’s publication is expected to be a make-or-break moment for the credit rating of Pemex, which was already downgraded to junk status by Fitch Ratings in June.
“I believe that this plan can be very good and Pemex’s situation can be healed in three years,” Urzúa said. “However, this will only be possible if we avoid projects like the refinery and we focus in an intensive way on the exploration and production of crude.”
Urzúa apparently is not the only official made uneasy by the direction of CFE and Pemex under the new government. The minutes of a June 26 meeting of the board of governors of central bank Banxico, published on Thursday, reveal concerns expressed by several of those present.
One member “warned that there is still no solution to the problem of [Pemex],” citing that “isolated measures have been announced that affect the development of the energy sector,” such as the cancellation of upstream bid rounds, the construction of the Dos Bocas refinery, “and the process of international arbitration initiated by the CFE against the companies that built the Texas-Tuxpan marine gas pipeline.”
Another member warned of the risk of pressure on Mexico’s currency if a second credit rating agency were to downgrade Pemex to junk, and said that “the lack of a credible business plan has contributed to the increase” of this risk.