Western Hemisphere 2021 Energy Landscape and Outlook

This renewed strengthening of the state productive enterprises could entail amendments to limit the private sector from freely participating in areas like generation or distribution of fuels. Changes in the logic of electricity dispatch and restrictions to private imports of fuels would be part of the modifications to avoid the judicial challenges that the current decrees have faced.

Scenario II: Full Reform

This scenario will occur if MORENA and allies win the legislative elections to renew the lower house and most of the local congresses, at the same time that Mexico experiences a rapid economic recovery in the first half of the year. If tax revenue grows and investments start to occur, a political victory will back up a counter-reform that will tend to revert the current legal framework. The larger the victory and the better the economic performance the more comprehensive the reform we could expect. This is not only because of the political support AMLO would have but also because it could open the door for a constitutional reform. Of course, one should consider that even with a super- majority there are restrictions that could limit the extent of the reform such as the free trade agreements that Mexico has signed, opposition from the industrial sector and foreign political pressure. Yet, the risk of a full back track in the energy sector plus additional measures is high in this scenario. In the power sector, under a constitutional reform we could observe in addition to getting CENACE back to CFE, the reclassification in the constitution of “generation” as a strategic activity, banning effectively new private sector investment, and in all likelihood getting back to SENER the Energy Regulatory Commission (Comisión Reguladora de Energía or CRE).

It could also limit (more) the autonomy of the regulators and even go as far as to change the institutional architecture of the energy sector to have a full control despite the fact that some changes could be unconstitutional (like for instance reinserting the electricity and gas operators within CFE and PEMEX). All of this in turn would likely result in lower reliability and higher costs to the system while investment decisions would be at best delayed if not cancelled.

INSTITUTE OF THE AMERICAS

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