No Energy Reforms Expected From Bush, Fox Talks

For all of the talk that President George W. Bush's team would secure an energy agreement with Mexican President Vicente Fox in their day-long meeting Friday, it appears that's all it was, big talk. They were expected to forge stronger ties, but a neighborly energy policy to open electricity markets to competition is, at best, a long-range (pipe) dream.

An energy policy that would benefit both countries sounds simple enough: the United States needs more power, and Mexico's regulatory scheme would make it easier to permit new facilities. Building the power plants doesn't pose a problem; securing the natural gas does. Mexico needs more natural gas - demand is expected to grow around 7% a year for the next 10 years - and many U.S. companies would probably want to build pipelines to accommodate their needs.

However, Mexico's power system is still a monopoly, and to make effective changes requires approval by the Mexican legislature. Now scheduled to reconvene in mid-March with a tax reform package at the top of their agenda, the general director of Mexico's Comision Federal de Electricidad (CFE) last week did not convey a lot of enthusiasm that the reputedly contentious Mexican representatives would also consider reforming electricity laws.

"I am the only CEO of a monopoly that does not want to be a CEO of a monopoly much longer," said Afredo Elias Ayub. Elias was a featured speaker at the Cambridge Energy Research Associates' CERAWeek 2001 meeting in Houston. "But to go from a monopoly to an open market will require changes in the Mexican electricity sector." He said the changes would not come easily.

Mexico's power plants are not monopoly-controlled, and Elias said he was in the United States to encourage more bidders on proposed power plant projects. On tap currently are nine plants this year; six in 2002; eight in 2003 and four more in 2004 to add about 6,000 MW within five years. However, the state still would control what is bought.

"We're the only buyers in the market," Elias said. "That restrains investment and we want to stop it." The "we" in the equation is the newly elected Fox, who swept the elections last year in an upset, but still has to deal with the strong opposition from members of the Institutional Revolutionary Party (PRI), which controls the legislature. Fox has promised sweeping reforms in several areas, including privatizing the electricity system, but so far, Congress has been cool to any suggestions of reform.

"It will take legal changes to go from a big monopoly to a market with several generators," Elias said. "We've had some trouble getting laws approved in Congress that would stop the monopoly." What Fox's team will propose next month will be to open electric power generation to outside investment. Transportation and distribution systems are not part of the proposal.

But there are other complications that, ironically, stem from Mexico's recent agreement to sell 50 MW of electricity to California. Elias said the power is coming from the country's large reserves, but the government has been blasted by critics for "stealing" power from the people. The public relations hurdle may hurt any proposed legislation, he said.

"The California crisis has caused a major obstacle to new legislation," Elias said. He only commented briefly on what he expects from the Bush-Fox summit today, but admits that Mexico is not moving as quickly as it should.

"We're 10 years back from where we should be," Elias admitted. "We'd be ready to move fast when congressional approval."

Carolyn Davis, Houston

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