Even though proposals for Constitutional changes coming from President Peña’s government are quite brief in its contents, the large statement of purpose that goes along with the initiative might shed some light over the plans of the federal government on energy issues. Regarding the electric sector and based on the aforementioned text, whose details might or might not be included within secondary legislation – if Constitutional reforms are approved, of course – an opening of the electric generation market (where private investment already exists with schemes of Independent Energy Producers, self-sufficiency and co-generation) would be contemplated as the creation of a State organ in charge of the dispatch and maintain control over dissemination and distribution networks. Certainly, the inclusion of the electric matter on the potential reform is something worth cheering for. Nevertheless, just like it happens with hydrocarbons, there are a few loose ends regarding the way in which the electricity sector would function. This is a key sector within the economy and it currently presents many problems. With the upcoming process of ruling in both Chambers of Congress, particularly at Senate, which will be the one who sets the initiative in motion, what main questions remain pending? What could be added to the changes in the Constitution or is it enough to modify secondary laws?
The dominant media attention regarding oil has overshadowed the vision towards the problems of the electric sector. Without major changes in the vertical structure of the monopoly that is the Federal Electricity Commission (CFE), the competitiveness that Mexican companies need cannot be enhanced. The initiative issued by the President does not contemplate one of the most obscure points of the electric debate, such as rate schemes and the low autonomy of the Energy Regulation Commission (CRE), the organ that one would suppose could be a key part of managing distribution networks under a scheme of real competition. An integral reform requires dealing with these matters, besides opening up commercialization (retail market) to competition in order to access benefits that the statement of purposes promises. These benefits will not be met if the Constitution remains as it is.
The closing off of electric commercialization forces small consumers (residential, commercial, services, and even small companies) to depend on the services of a monopoly like CFE. Without having to compete to provide users with the best possible service, there are no visible incentives for the state company to improve on energy losses or quality of service. On the other hand, a decrease in energy bills, as promised by Enrique Peña Nieto during his Presidential campaign, might be artificially implemented due to the fact that the Secretariat of Finance issues its determination; even so, its feasibility would not have a solid backup. If electric rates are not modified, the CFE assets will remain at risk, consumer patterns will be distorted due to the artificial price of electricity and subsidies will not be targeted towards those who really need it.
The agreement that the Presidential initiative foresees might be less profitable than what is advertised in official propaganda. Summarizing, the reform proposed by the government goes through the right path, but it is insufficient to tackle all the sector’s problem. We’ll see if the legislative debate – for example, putting into discussion some points of the proposal presented by PAN a few weeks ago, which does establish the vertical structure of the electric monopoly – proves a good scenario to materialize a deep reform to the sector.
Be as it may, it is undeniable that any change within the energy industry in Mexico, specially from Pemex, implies a modification in tax policy, the next discussion topic of Mexican society.
CIDAC
Comments