Nov. 2, 2000With Mexico’s electricity sector at a crossroads, President-elect Vincente Fox is expected to submit an electricity sector reform bill to the Mexican Congress before he takes office next month. A vote on the legislation is expected shortly after his Dec. 1 inauguration.
The bill is expected to include constitutional changes to allow private investment in the sector. Privatization of the electricity sector, one means of promoting investment in the sector, is a contentious issue in Mexico, and legislation to change the constitution to allow private investment in the sector is expected to encounter strong opposition.
It is unclear whether Fox of the National Action Party (PAN) will be able to generate the required two-thirds majority in the bicameral Congress to enact a constitutional change, says analysts at the US Energy Information Administration (EIA). Many Institutional Revolutionary Party (PRI) congressional representatives have pledged to block the reform bill.
Meanwhile, the Mexican economy is growing rapidly boosting the demand for electricity. Although electric generation has risen during the past decade, supply is not expected to keep up with demand over the next two decades. Shortfalls resulting in nationwide blackouts are predicted within the next 2 years, says the EIA.
Competition in jeopardy
Moreover, the agency says, failure to make substantial investments in generation capacity and infrastructure could jeopardize the international competitiveness of Mexico’s key northern industrial regions. About 95% of Mexican households are electrified, but many thousands of rural towns do not have electricity.
To combat impending shortages, current President Ernesto Zedillo pledged to have 30 major power generation projects under way when he leaves office in December. If all goes as planned these 30 projects, which will begin operation between now and 2004, are anticipated to add 11,500 Mw of capacity and require investment of almost $7 billion.
The state-owned Federal Electricity Commission (CFE) has enjoyed a monopoly in the electric power sector for decades, although reforms instituted in 1992 allow independent power producers (IPP) and cogenerators limited involvement. CFE generates about 92% of Mexican electricity. Light & Power (LFC) contributes about 2%, with most of its customers in Mexico City. State oil company Petroleos Mexicanos (Pemex) generates 4%, while the remainder is generated by the private sector.
Oil-fired plants make up the largest share of electricity generation, and thermal electricity generation in 1998 accounted for 78% of total generation. Hydropower accounted for 14%; nuclear power, 5%; and other renewable sources, including wind, solar, and biomass, 3%.
Mexico’s industrial energy policy calls for conversion of many oil-fired power plants to natural gas by 2005 with new power plants to be gas-fired. The conversion could be slowed by a projected gap between natural gas production and demand. To boost supply, a tariff on gas imported from the US was lifted in mid-1999. Pemex predicts gas production will increase more than 50% from current levels by 2008.
The natural gas industry is the most liberalized of Mexico’s energy sectors, EIA says. Despite early indications the US would dominate private investment in Mexico’s gas market, European companies, led by Spain’s Gas Natural and increasingly by Belgium’s Tractebel SA, currently have a larger presence than US companies. Sempra Energy International, a unit of Sempra Energy, is the only US-based company with significant involvement in the sector at present, the EIA says.