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Oil Likely To Hit $200: SEB Group

Mexico Court Rules In Favor of Government's Energy Reform

A Mexican court overturned a bid seeking to cancel the energy industry reform pushed by the Mexican government under the leadership of President Andres Manuel Lopez Obrador.

According to a report by the Financial Times, the majority of a panel of judges voted against some of the central stipulations of the proposed new energy law—but the majority did not reach the eight votes required to invalidate the bill.

The purpose of the proposed energy sector reforms is to reinstate government-controlled entities as virtual monopolies in the Mexican energy market. This is part of efforts to strengthen the state's control over all industries.

However, the energy sector reform could shelve $22 billion worth of wind and solar projects. These projects are all operated by big foreign companies, including Spain's Iberdrola and U.S. Sempra Energy, potentially putting Mexico at odds with foreign governments, most notably its northern neighbor.

The energy bill could lead to the cancellation of some of these renewable energy projects as it prioritizes the development of hydropower, nuclear power, and natural gas power generation: capacity run by state-owned Comision Federal de Electricidad. The government wants to boost its market share to above 54 percent from a current share of 38 percent.

The private sector has already accused the government of putting billions of dollars in investments in jeopardy with its reform push, noting that it also constitutes a violation of trade treaties and would lead to more polluting and more expensive electricity.

"On top of the policy and political uncertainty that is affecting business confidence, this decision adds a component of legal uncertainty that companies will have to deal with," Carlos Peterson, senior analyst at Eurasia Group, told the FT. "That will likely discourage investment." 

The U.S. has been vocal in its opposition to the planned reforms, with climate envoy John Kerry visiting Mexico three times over the last five months to make this opposition known to those working on the reform. The U.S. trade representative Katherine Tai has warned that as much as $10 billion in U.S. investment was under threat from the reform.

By Charles Kennedy for Oilprice.com

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