AMLO

Energy regulatory officials in Mexico reportedly agreed on Tuesday to follow a directive from President Andrés Manuel López Obrador to align regulations and permitting with his goal of strengthening state-owned oil company Petróleos Mexicanos (Pemex) and power company Comisión Federal de Electricidad (CFE).

The news, which was first reported by local outlet Expansión, sent shockwaves through Mexico energy circles, and follows the circulation of a memorandum attributed to the president outlining his vision for giving preferential treatment to Pemex and CFE.

In a private meeting with the president on Tuesday, officials from government bodies including 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.

NGI’s Mexico GPI independently confirmed the news through a CRE source with direct knowledge of the meeting.

A CNH spokesman said the upstream regulator did not have information on the meeting, while the other regulatory bodies had not responded to requests for comment as of Wednesday afternoon.

The memorandum lays out a list of 17 objectives, which include freezing any increase in real terms of gasoline, diesel, gas and electricity prices; ceasing oil exports, in order that Mexico only produce the amount of crude needed to supply its domestic refineries; achieving oil production of 1.8 million b/d in 2020 and 2.2 million b/d by 2024; and giving CFE-owned power plants priority in the dispatch order.

Mexico’s supreme court halted the most recent attempt by López Obrador’s energy ministry to impose new power sector rules favoring CFE.

Daniel Salomón Sotomayor, an associate with Mexico City-based law firm Gonzalez Calvillo, told NGI’s Mexico GPI that if the regulators follow through on López Obrador’s directive, “companies and social organizations may file lawsuits arguing that such changes contradict the main principles of the constitution and hydrocarbons law.”

He added, “I think companies will have chances to win however, in fact the functions of CRE will be paralyzed.”

Eduardo Prud’homme, founder of the Gadex consultancy, expressed a similar view with regard to the natural gas segment, saying that while authorities are unlikely to revoke existing permits, they could slow the awarding of new ones.

Former commissioners of the CRE, which is similar to the U.S. Federal Energy Regulatory Commission, have warned that Mexico’s energy regulators are losing their independence and autonomy under the current regime.

In a recent webcast panel, former CRE chairman Franscisco Xavier Salazar cited the president’s appointment of four commissioners widely viewed as lacking the necessary qualifications, as concerning.

The new commissioners “have no sense of what they’re there to do…and that is important because in the very end of things, what happens is investment goes to zero,” added former commissioner Montserrat Ramiro.

Tuesday’s meeting is part of a larger effort by the current government to weaken the 2013-2014 energy reform, which ended the monopolies formerly held by Pemex and CFE.

Local media outlets reported Wednesday that the director of CENACE, Mexico’s national power grid operator, had tendered his resignation.

The director, Alfonso Morcos Flores, was appointed by López Obrador when the new government took power in December 2018. The motive behind his resignation was not yet known.

He will reportedly be replaced by Carlos Gonzalo Meléndez Roman, a sub-director of strategy and regulation at CFE. 

The resignation of Morcos Flores had not yet been confirmed by CENACE at the time of writing.