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Mexico Energy Reform Sparks Wave Of Lawsuits

The Mexico chapter of the International Chamber of Commerce (ICC) expects a wave of international arbitrations and lawsuits in the coming weeks after Mexico enacted this week a new law that favors state-owned electricity generation companies over private power firms.

Mexican President Andrés Manuel López Obrador pushed in recent weeks a new law for the country’s electricity sector, which strengthens state control over the power generation sector by promoting state-owned companies.

The antitrust regulator of Mexico, COFECE, said last month it recommends the lawmakers not to approve the new law because it would seriously undermine competition in the electricity generation and sales markets.

The new law, which came into force earlier this week, stipulates that state-held power companies—which generate electricity predominantly from fossil fuels—have priority over privately owned power firms when electricity is being bought.

“It appears there will be a wave of constitutional injunctions,” the president of ICC Mexico, Claus Von Wobeser, said, as carried by The Associated Press.

“All of the affected companies are going to file appeals,” Von Wobeser added.

The U.S. Chamber of Commerce warned in February that the then-proposed reform to Mexico’s Electrical Industry Law could create a monopoly and violate Mexico’s commitments under the U.S.-Mexico-Canada Agreement (USMCA).

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“Unfortunately, this move is the latest in a pattern of troubling decisions taken by the Government of Mexico that have undermined the confidence of foreign investors in the country at the precise moment enhanced foreign direct investment in Mexico is needed more than ever,” Neil Herrington, U.S. Chamber of Commerce Senior Vice President of the Americas, said in a statement last month.

“Further, these changes would significantly raise the cost of electricity and limit access to clean energy for Mexico’s citizens,” Herrington said.

López Obrador has also been a vocal critic of the energy reform of his predecessor Enrique Peña Nieto, who opened in 2013 Mexico’s oil and gas sector to private investment for the first time in seven decades. The incumbent Mexican President seeks a greater role for Pemex in reversing the downward trend in Mexican oil production and is criticizing the energy reform and the foreign oil firms for failing to do so.    

By Charles Kennedy for Oilprice.com

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