After long months of debates, discussions with specialists, opinions as well as speculations, the legislative procedure of the energy reform was finally drafted. Regarding the aforementioned document, it needs to be highlighted how quickly both chambers of Federal Congress and most of local Congresses ended the “discussion” of one the most important Constitutional changes in the last century. In little more than a week, a process was ended where, along with other issues, has usually taken more than three months, sometimes even years. Regardless of the legislative quickness, the historical traits of the opening up of the energy sector cannot be denied.
Although the removal – in legal terms – of the oil nationalism is remarkable, the other part of the reform should not be overlooked: the electric sector. Unlike the optimism that the hydrocarbon sector has received, the same cannot be said with electricity. Although the openness of generating and commercializing electric energy has been allowed, the way in which the market is to be regulated by the State might not be what is necessary to achieve all possible benefits.
A deep electric reform would start by breaking up the vertical monopoly that the Federal Commission of Electricity (CFE) has become, that is to say, separating the generation from the transmission, distribution and commercialization of electric energy. In the approved reform, this activity separation would be in charge of the Secretariat of Energy (SENER) rather than the regulating entity, the Energy Regulation Commission (CRE), which will keep on creating “territorial” and authority conflicts between CFE, SENER and who eventually are involved in the issues that are open for competition. Although CRE was provided with a greater autonomy, it will remain subordinated to SENER as a decentralized entity. Likewise, the reform is not clear regarding who will determine the electric tariffs or subsidies – in case they remain – which might point that they will be kept under the jurisdiction of the Secretariat of Finance (SHCP), the entity that has gained the greater power within this energy reform.
Determining electric tariffs by SHCP has been one of the greatest mistakes in electricity matters in the country. The crossed subsidies that have been derived from the tariffs that SHCP has authorized CFE to charge have led the state company to lose a large amount of money due to the fact that prices are not covering all costs. In addition the mechanism itself does not allow CFE to raise its efficiency levels or diminish its costs. Over the next months, the legislation of the Law of Public Service on Electric Energy ought to clarify who will define the aforementioned tariffs. To continue determining energy tariffs via the Executive Power would show the government’s incapacity to overcome the dilemma of the political control versus the economic development, especially when one of the most repeated promises of the reform – which comes since the Presidential campaign – is the reduction of the tariffs via a greater efficiency in the electricity generation, instead of an artificial manipulation.
A greater competition in generation and commercialization would help on a medium-term decrease on electric tariffs but, given the current subsidy scheme, the only way in which consumers will actually experience lower prices would be with a greater government subsidy. Since CFE cannot observe a greater subsidy and there will be no private company entering a market where the price of sale will be below the price of costs, the government will have to design a mechanism through which it will fulfill its promise without compromising a potential competitive market that the electricity generation represents. Since the government is aiming for political rather than economic goals, it is plausible that it might get indebted as long as it could say that the reform has delivered on its promise. Such a scenario would return us to the worse practices made by PRI governments who used to rule without any sort of fiscal discipline.
The economic conditions of the energy sector have changed when compared to the years of the authoritarian regime. Perpetuating the political control on the matter would end up minimizing and even hindering the potential benefits of an energy reform.
CIDAC
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