Mexican companies face higher electricity charges

Some of Mexico’s top businesses face increases in electricity charges that analysts say will raise prices for consumers just as Latin America’s second-biggest economy faces its worst recession in a century.

Mexico’s electricity regulator this week approved an increase in transmission tariffs for companies that generate their own electricity under so-called self-supply contracts dating from before 2014 — the cost of hooking up the power they produce for their own use to the national grid.

Details have not been made public. But Roger González, head of the energy commission at the country’s main business lobby, CCE, said he understood costs would be up to 10 times higher and “we think companies that generate about 14 per cent of GDP will be affected, in all sectors”.

Neither the CFE, the state utility, nor the regulator had any comment.

The move was the latest in a string of market-unfriendly moves by the populist government of President Andrés Manuel López Obrador, who has vowed to stop Mexico being “conquered” by foreign power companies, which he says want to push out the CFE.

Private companies fear the government, with its 1970s energy nationalist rhetoric, is trying to break up the electricity market. Measures have taken particular aim at renewables producers, whose generation costs average less than half those of the state company.

A tariff increase of 1,000 per cent would “destroy half the wind and solar projects in Mexico . . . there’s never a good time to change the rules but now it’s madness,” said Julio Valle, spokesman for Mexico’s wind and solar power associations.

The president believes private power producers have long had an unfair advantage over the CFE. He said the rule changes, which have alarmed investors and triggered a flood of injunctions, will “restore order”.

“It’s not the best time [to take such measures] because of the health and economic crisis,” CFE director Manuel Bartlett admitted in an interview, in which he said his job was to “rescue” the 83-year-old company.

“But that’s all the more reason why I have to defend my interests . . . I’m not trying to end competition . . . We just want them [private companies] to be honest and pay what they have to.” He declined to put a figure on how much more he wanted private companies to cough up.

Companies affected by the increased charges include retailer Walmart, department store firm Liverpool, building materials giant Cemex, Femsa, a Coca-Cola bottler which owns the Oxxo convenience store chain, car producers such as VW and Nissan, mining and rail conglomerate Grupo México, as well as private hospitals, universities, beer producers and a couple of dozen towns that use self-supply for street lights.

“It’s a way of the CFE getting rid of competitors,” said Regulo Salinas, president of the energy commission of Concamin, Mexico’s confederation of industrial chambers, and business vice-president at Ternium, a steel company. “It’s an ideological question that the energy sector must be a state asset.”

“This will translate into other increases — more expensive cement, price rises in what you buy at Walmart,” said Víctor Ramírez, an energy expert.

The shake-up comes as Mexico, in recession even before Covid-19, could have GDP contract 8.8 per cent this year, according to the central bank.

Mexico announced other electricity market changes at the end of April and on May 15 sought to ram through sweeping changes to who can generate, how much and where. A court on Thursday temporarily put the May 15 measures on hold and companies have won other injunctions against the earlier measures. Legal challenges to the new transmission charges were expected.

Mr Bartlett, one of the most powerful influences on the president, denied the changes were part of an ideological crusade, saying “that is the language of the private sector who don’t want me to do anything . . . Is it ideology to keep the CFE powerful or is it common sense? It’s not ideological to say ‘pay me’.”

He said the CFE was planning to invest heavily — he declined to say how much — in hydroelectric projects, which he said would ensure Mexico met its Paris Accord clean energy targets.

But he repeatedly dodged questions about whether CFE would use expensive and polluting fuel oil for generation, saying only: “We will implement all the measures that we need to.” Pemex, the lossmaking state oil company, has a glut of fuel oil and no one else to sell it to.

The government maintains the energy reform would have shrunk CFE’s share of generation to 25 per cent by 2024, from 54 per cent in 2017.

Although CFE only makes money in transmission and distribution, and generates electricity more expensively than the private sector, Mr Bartlett said: “I won’t accept that we can’t generate. We are a great national company. We’ll build plants and generate and compete and have an efficient national company, not a company devoted to buying energy from private companies.”

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