Mexico's electric power struggle

Mar 20, 2002 01:00 AM

What do you get when you mix power and politics? Lots of sparks. Indeed, the static is already building up in Mexico City, where a new legislative session begins on Mar. 15. Electricity reform is at the top of the agenda. Snoozy stuff? Not in Mexico.
That's because the business of juice is a charged topic in a country that nationalized its power industry in the 1960s, sending Canadian and British investors packing. Four decades later, Mexicans are pondering whether to let the foreigners back in. The debate promises to be heated, particularly since it pits two of Mexico's leading political figures against each other: President Vicente Fox and Senator Manuel Bartlett.
The pair personify the divergent ideological forces at work in Mexico. A former Coca-Cola executive, Fox, 59, wants to curb the role of government in areas of the economy where he thinks the private sector could do a better job--from drilling natural-gas wells to generating and distributing electricity.
Bartlett, 66, a career politician and lifelong member of the Institutional Revolutionary Party, which ruled Mexico for over seven decades, firmly believes that the state must retain control over certain strategic sectors -- electricity being one of them.

Both of these philosophies are widely embraced in Mexico. Nearly two decades of free-market reforms have transformed a closed and backward economy into Latin America's premier manufacturer and exporter. Yet Fox argues that Mexico must pry open remaining protected sectors, such as electricity, to private investment.
But after a string of botched privatisations, many Mexicans have soured on the notion that the private sector can run utilities better than the government can. Such sentiments are rich fodder for nationalist politicians like Bartlett.
The claims and counterclaims are already flying. Fox & Co. maintain that without reforms, Mexico will be the victim of a crippling power crisis perhaps as soon as 2004. Number crunchers at the Energy Ministry figure generating capacity must double by 2008 to keep pace with demand, now growing at 8 % a year. Officials estimate that the upgrade will cost Mexico $ 50 bn, money Fox thinks would be better spent improving education and on programs to combat widespread poverty.

So the President's right-right National Action Party (PAN) has drafted legislation that would allow private investors to foot part of the bill. That would mean private companies could compete head-on with Mexico's state-run utilities, the Federal Electricity Commission and Central Light & Power. "Energy reform is the most controversial, complex issue facing the country right now," says PAN Senator Juan José Rodriguez Prats, one of the legislation's sponsors.
"An energy crisis would mean a real loss of economic opportunities for Mexico."Bartlett, never afraid to speak his mind, says this is all hogwash. "We're not facing an electricity disaster. That's a lie," says the senator and former governor of the state of Puebla. He and other opponents of privatisation have plenty of ammunition to defend their position, including failed US experiments with power deregulation. "Look at the energy chaos in California," says Bartlett. "Do they want to sell the American failure to us?"

Bartlett has drafted a bill to ban private companies from increasing their share of overall power generation -- a figure that now stands at only 10 %. It would be even lower if not for a decade-old program that allows companies to build power plants to supply their own operations or sell their power to state-run utilities.
Meanwhile, nations such as Chile, Argentina, and more recently Brazil have privatised most, if not all, of their generation and distribution. Instead, Bartlett is pushing for a restructuring of Mexican utilities to make them more efficient.
It's not hard to figure out which camp the Mexican Electrical Workers Syndicate (SME) is siding with. Many in the 35,000-strong union fear that Fox's electricity reform is just a prelude to wholesale privatisation ofthe sector, leading to massive layoffs. "There's no way we can compete against the foreign companies. They would crush us," says Ramón Pacheco, an SME official. Undaunted, the government last month kicked off a public relations offensive that takes aim at the generous benefits enjoyed by the union's affiliates. SME members are entitled to free electricity, and their relatives have first dibs on jobs at state-run utilities.

It will probably take more than a few pot-shots at coddled unions to convince the public that reform is a necessity. Many Mexicans are still smarting from the government's decision to scale back subsidies for residential users, a move that led to rate increases of as much as 30 % in February. Respondents in a recent poll were evenly split between those who favour retaining the state's monopoly on electricity and those who favour opening up the sector to competition.
Such divisions are not surprising, considering Mexico's mixed track record on privatisation. Many feel that the 1991 sale of state-owned phone company Teléfonos de Mexico simply turned a public monopoly into a private one. Although service has improved, rates have risen, and few competitors have managed to chip away at Telmex' 95 % share of the local market.
Adding to the tension is the symbolic importance of the energy sector in Mexico, where the state-run oil and electricity monopolies are seen as emblematic of the country's self-sufficiency.

As a candidate, Fox told an audience of foreign investors that Mexico should follow Argentina's example and sell shares in its state-run oil company, Petroleos Mexicanos. Yet he always knew he'd lack congressional support for such a controversial move. Still, his opponents in Congress believe that if Fox had his druthers, he'd auction off Mexico's patrimony to the highest bidder.
"For some, anything that sounds like privatisation would mean being a traitor to the Revolution," says political scientist José Antonio Crespo. Whether electricity reform succeeds depends very much on Fox himself. After failing to win approval for a tax overhaul last year and seeing his approval rating drop to just 48 %, Mexico's President badly needs a victory on energy policy.
So far, Fox has shown little patience for the painstaking process of negotiating with the opposition-dominated Congress. That's in stark contrast to Bartlett, who has honed his deal-making skills during a political career of nearly half a century. With both mega-watts and mega-egos at play, Mexicans are sure to see fireworks soon.

Source: Business Week Online
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