Mexico battles with deregulation of electricity industry

Mexican President Vicente Fox's plan to open the state-controlled electricity industry to more competition may face the same fate in Congress as the other reforms he says the country needs to accelerate growth and ensure economic stability: Failure.
His proposal to deregulate the electricity industry has earned him the opposition of unionised workers, many politicians and more than 60 % of the Mexican electorate, who are taught at school that the 1938 nationalization of the oil and gas industries was a key event in the building of modern Mexico.

The 60-year-old president may have to offer the opposition-controlled legislature a compromise on his energy policy when he addresses the opening of a new Congress. At risk is the power he has gained as the first president from outside the Institutional Revolutionary Party in more than seven decades.
“His inability to deliver legislation has completely tarnished his presidency and I think this is going to be another tough one,” said Juan Lindau, a professor of political science at Colorado College and author of three books on Mexican politics. “His credibility in terms of being able to deliver any serious reforms is at stake.”

Congress blocked Fox's bill to tax food and medicine to raise money for education and health care, and resisted his proposals to strengthen the telecommunications regulator and change the labour laws to make it easier to lay off workers.
To gain approval for the electricity deregulation plan, Fox will be asking Congress to change the nation's Constitution, which generally prohibits private companies from building generators and selling power to the state. Mexican Senator Manuel Bartlett leads a dozen Senators who have publicly declared they will vote against the Fox proposal, two more than needed to prevent Fox from getting the two-thirds majority required to alter the constitution.
“The privatisation of the country's state companies is truly scandalous,” said Bartlett, who heads the legislative commission for constitutional affairs. “It will not succeed.”

Bartlett, a member of the Institutional Revolutionary Party (PRI), says state control insulates Mexico from profit-seeking companies who would pull out in the event of an economic slowdown as well as the volatility of deregulated markets in the US.
Bartlett has pointed to the economic collapse of Argentina, which sold most of its state-owned industries in the 1990s, as well as the power shortages in California last year following that state's power deregulation. Fox has claimed deregulation will help attract $ 5.5 bn in foreign investment a year, money that will go toward expanding the nation's aging electricity plants and avoiding future shortages.

Fox's plan would allow foreign companies such as Duke Energy to build plants in Mexico and sell energy on the open market to corporate customers using at least 2,500 MW hours of electricity per year, as well as to the Federal Electricity Commission, the state distribution monopoly known as the CFE, accordingto the proposal delivered to Congress.
About 500 companies would qualify to select their own supplier under the proposal, creating a free market worth approximately $ 2 bn, according to official estimates. The Mexican president based his proposal on France, which in 1999 gave the country's largest power consumers the option to choose their supplier. Since then, the state power company, Electricite de France, has lost more than 100 customers, while retaining control of two-thirds of the market.

Companies such as Spain's Iberdrola and Electricite de France now operate some power plants under special-subcontractor agreements, accounting for about 10 % of the $ 10 bn of electricity consumed in Mexico last year. “We steer our investments toward markets where there's transparency and competition,” said Stephen Morisseau, director of public affairs for Duke. “In as much as the bill might help make those conditions, we would look at investing more in Mexico.”
A possible compromise might include measures toincrease the state monopoly's ability to contract private generators and to raise limits on how much surplus electricity private companies producing for their own consumption can sell the government distribution network, analysts said.

Fox faces a long history of opposition to foreign access to the energy sector. In 1938, President Lazaro Cardenas became a national hero when he seized the oil and gas industries for the state. In 1960, Mexico appropriated US and Canadian companies to bring the electricity industry under state control.
Still, Fox hasn't let up his lobbying. Under his orders, Energy Minister Ernesto Martens has commonly invited senators to private dinners to press for support, according to Senator Marco Antonio Fernandez, who dined with Martens. Fox may have another chance to push his plan through Congress after next year's mid-term elections, when his National Action Party is hoping to win its first majority in the 500-seat lower house. “The last thing this government loses is hope,” Bartlett said. “They simply don't give up.”