The Mexican business environment for energy sector players could be hampered by plans to fold autonomous regulators and the competition watchdog into existing ministries.

AMLO

Mexican President Andres Manuel Lopez Obrador said last week he was considering the move in a bid to save money to prioritize social spending as the economy reels from the impact of the coronavirus.

Analysts at political risk consultancy Eurasia Group said the moves would “further hit business confidence.” The move does not come as a surprise, however, with regulator budgets already slashed in the president’s push for austerity.

“Lopez Obrador has always disliked these institutions, thinking they are too expensive and do not serve the purpose they were created for,” Eurasia analysts said.

The analyst group was not clear which autonomous agencies would be targeted, but the bill could include Mexico’s Comisión Federal de Competencia Económica (Cofece), as well as energy regulators Comision Reguladora de Energia (CRE) and Comisión Nacional de Hidrocarburos (CNH).

Cofece has proven to be one of the few effective counterweights against López Obrador’s more controversial energy policies.

Eurasia analysts said the proposal “could be postponed and diluted by the midterm electoral cycle, a lack of willingness by the opposition to collaborate and a tight timeframe given that the ruling Morena coalition does not have the two-third votes needed to approval the bill in the senate,” where it has 59% of the seats.

The June midterm election would see the entire lower house up for election, as well as numerous gubernatorial, state legislature and mayoral races. If Morena loses its majority in the lower house in the midterms, “passing such a reform will be even harder,” they said.

The Baker Institute for Public Policy’s Tony Payan suggested that Morena was unlikely to regain a majority in both houses of congress, with the possibility of a divided congress the most likely outcome.

However, said the Eurasia analysts, “even if the government fails to eliminate these institutions, it will force some changes in their responsibilities and capabilities, which will further deteriorate the government’s functioning and continue to undermine business confidence.”

The news of the possible elimination of Cofece comes weeks after the institution warned that new permitting rules in the energy sector would hamper investment and lead to monopolistic practices.

In mid-December, Cofece warned that the rules would “seriously hamper competition and free markets in the commercialization of petroleum products, and would affect consumer access to supply options at the best possible prices.”

Nevertheless, Mexico’s Energy Ministry (Sener) made the requirements for permits official at the end of December.

One of the major changes in the published rules is reducing the duration of refined fuel permits for private sector companies to five years from 20 years. This reduces incentives to invest in long-term transportation and storage infrastructure, Cofece said.

The bill also established unclear and burdensome requirements for requesting permits and granted wide discretion to Sener in its ability to revoke them. It turned granting permits into “a public policy instrument” to control the makeup of the energy sector, according to Cofece.