Mexico’s antitrust watchdog Comisión Federal de Competencia Económica (Cofece) has sent a letter to Mexico’s Congress decrying proposed changes to the nation’s Ley de Hidrocarburos, or Hydrocarbons Law.
“We recommend the reform to the Hydrocarbons Law isn’t approved,” President Jana Palacios said on Twitter. She suggested the proposed changes would be damaging to competition in the nation’s energy sector. “Without competition, the risk is that prices will rise.”
In late March, Mexico President Andrés Manuel López Obrador sent a bill to Congress to amend the Hydrocarbons Law. The amended law would give the state greater control over granting and revoking permits in the oil, gas and petrochemicals business.
“If approved, the initiative would generate legal uncertainty for participants in the hydrocarbon and petroleum chain, and it would also create room for an artificial and unjustified restriction of the supply of products and services that would be detrimental to Mexican consumers,” Cofece said in a statement.
Cofece has proven to be an important countermeasure to moves by Mexico’s government to ‘strengthen’ state oil giant Petróleos Mexicanos (Pemex) and state utility Comisión Federal de Electricidad (CFE). This has included filing legal challenges that have so far halted the proposed changes.
López Obrador meanwhile has threatened to fold Cofece and the energy sector regulators into existing ministries.
The Mexican president has long made it clear that he seeks to undo the measures that opened the energy industry to private participation during the six-year term of his predecessor, Enrique Peña Nieto. The changes attracted international energy companies to Mexico, brought in billions of dollars of investment and helped create Latin America’s most advanced natural gas market.
But López Obrador has said Peña Nieto’s energy reforms only served to debilitate the state energy companies and created a culture of corruption.
He also said the aim of the modification to the Hydrocarbons Law is to continue the fight against fuel theft. “Huachicoleo,” a colloquial term for fuel theft, has proven disastrous to Pemex, with lost revenue upwards of $3 billion/year in the two years preceding López Obrador coming to power.
“We aren’t cancelling contracts,” the president said Monday in his daily morning press conference. “We simply don’t want contraband in gasoline, this is the only thing we are fighting.”
Cofece “recognizes as legitimate the efforts of the federal government to combat the smuggling of hydrocarbons and petroleum products,” and isn’t against the “legal modification that anticipates revoking permits for this specific cause.”
But there is particular concern over language in the bill that allows for confiscating permits based on a criteria of “imminent danger to national security, energy security and the national economy.” The bill states that in the event of a revocation, the government or relevant state company would assume responsibility for the operating permit.
“There is definitely an air of expropriation in the proposed modification,” Mexico energy analyst Eduardo Prud’homme wrote in a column for NGI’s Mexico GPI last week. “In an extreme interpretation, the amended law allows Pemex to regain its market power through the appropriation of foreign infrastructure.”
Mexico energy expert David Goldwyn told NGI’s Mexico GPI that if López Obrador’s attempts to change the energy sector prove unsuccessful because of resistance in the courts, then the president would look to modify the constitution after the midterm elections.
In order to change the constitution, the president would need a two-thirds majority in both houses of congress. The president’s Morena party has already secured this in the Senate, but the entire lower house is up for grabs in the midterm vote.
The bill to amend the Hydrocarbons Law is expected to be approved by the lower house this week, and will likely get through the Senate before the midterms, according to analysts at Eurasia Group.
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