For all of the talk that President George W. Bush’s team wouldsecure an energy agreement with Mexican President Vicente Fox intheir day-long meeting Friday, it appears that’s all it was, bigtalk. They were expected to forge stronger ties, but a neighborlyenergy policy to open electricity markets to competition is, atbest, a long-range (pipe) dream.

An energy policy that would benefit both countries sounds simpleenough: the United States needs more power, and Mexico’s regulatoryscheme would make it easier to permit new facilities. Building thepower plants doesn’t pose a problem; securing the natural gas does.Mexico needs more natural gas – demand is expected to grow around7% a year for the next 10 years – and many U.S. companies wouldprobably want to build pipelines to accommodate their needs.

However, Mexico’s power system is still a monopoly, and to makeeffective changes requires approval by the Mexican legislature. Nowscheduled to reconvene in mid-March with a tax reform package atthe top of their agenda, the general director of Mexico’s ComisionFederal de Electricidad (CFE) last week did not convey a lot ofenthusiasm that the reputedly contentious Mexican representativeswould also consider reforming electricity laws.

“I am the only CEO of a monopoly that does not want to be a CEOof a monopoly much longer,” said Afredo Elias Ayub. Elias was afeatured speaker at the Cambridge Energy Research Associates’CERAWeek 2001 meeting in Houston. “But to go from a monopoly to anopen market will require changes in the Mexican electricitysector.” He said the changes would not come easily.

Mexico’s power plants are not monopoly-controlled, and Eliassaid he was in the United States to encourage more bidders onproposed power plant projects. On tap currently are nine plantsthis year; six in 2002; eight in 2003 and four more in 2004 to addabout 6,000 MW within five years. However, the state still wouldcontrol what is bought.

“We’re the only buyers in the market,” Elias said. “Thatrestrains investment and we want to stop it.” The “we” in theequation is the newly elected Fox, who swept the elections lastyear in an upset, but still has to deal with the strong oppositionfrom members of the Institutional Revolutionary Party (PRI), whichcontrols the legislature. Fox has promised sweeping reforms inseveral areas, including privatizing the electricity system, but sofar, Congress has been cool to any suggestions of reform.

“It will take legal changes to go from a big monopoly to amarket with several generators,” Elias said. “We’ve had sometrouble getting laws approved in Congress that would stop themonopoly.” What Fox’s team will propose next month will be to openelectric power generation to outside investment. Transportation anddistribution systems are not part of the proposal.

But there are other complications that, ironically, stem fromMexico’s recent agreement to sell 50 MW of electricity toCalifornia. Elias said the power is coming from the country’s largereserves, but the government has been blasted by critics for”stealing” power from the people. The public relations hurdle mayhurt any proposed legislation, he said.

“The California crisis has caused a major obstacle to newlegislation,” Elias said. He only commented briefly on what heexpects from the Bush-Fox summit today, but admits that Mexico isnot 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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