Analysis: Mexico's Sheinbaum spurs hope of more private investment in energy after Lopez Obrador

Vulcan Materials Co

21/12/2023 12:00

By Dave Graham
       MEXICO CITY, Dec 21 (Reuters) - The favorite to be
Mexico's next leader will likely be more open than her mentor
President Andres Manuel Lopez Obrador to private investment in
energy in order to help fund her renewable power push at a time
of tighter public finances, aides, officials and executives
said.
        Former Mexico City Mayor Claudia Sheinbaum, front-runner
to become Mexico's first woman president in June elections,
plans to boost clean energy usage while upholding Lopez
Obrador's pledge to keep at least 54% of power generation in
state hands.
    The president's drive to tighten state control of energy has
been one of the most contentious aspects of his agenda, and the
next administration's approach could go a long way to defining
its economic fortunes, analysts say.
    Sheinbaum has diverged little from Lopez Obrador on energy
except for her vigorous advocacy of renewables.
        But aides told Reuters she would have scope to lift
private investment because the state should control
significantly more than the 54% threshold by the time she took
office.
        "The role of private investment is going to be really
important," a close ally of Sheinbaum said.
  
        Sheinbaum has given few details of her energy plans, but
key pointers to how she views the challenge emerged from
Reuters' conversations with some two dozen serving and former
officials, executives, politicians and aides privy to
discussions with her.
  
        They said they expected her to be more pragmatic about
tapping private capital once in power, citing her awareness of
factors including budget constraints, rising energy demand, and
the need to avoid disputes like those that erupted under Lopez
Obrador which could cost the state billions of dollars.
    Sheinbaum has a lead of more than 20 points in most opinion
polls over opposition rival Xochitl Galvez, who has pitched a
more aggressive opening of the energy sector to private capital.
    Responding to a request for comment, her campaign said
Sheinbaum saw state control of at least 54% of power generation
as "fundamental" and that she had no intention of changing it.
    "In that sense, she guarantees there will be room for public
and private investment," it said in a statement to Reuters,
which had sought comment on the key points of this article.
    Her campaign did not address most of them, saying only there
was information that was "imprecise" without elaborating.
    Privately, allies of Sheinbaum said Lopez Obrador's policies
have made some foreign firms wary about "nearshoring" - moving
operations to Mexico from Asia or elsewhere - and that funding
her renewables plan with public money alone will be tough.
    Three aides noted that Lopez Obrador's recent purchase of
Iberdrola energy assets should mean that as much as two-thirds
of power generation is in public hands by the end of his term,
giving Sheinbaum leeway to increase private investment.
    Lopez Obrador has spent billions propping up Mexico's fossil
fuel-dependent energy giants, oil firm Pemex and power utility
CFE. Sheinbaum, an energy expert decorated for her work on
climate change, is emphatic about protecting the environment.
    "We will accelerate the energy transition to renewable
sources of energy, guaranteeing energy sovereignty," the
61-year-old scientist said in November.
    
    ARBITRATION
    Lopez Obrador recently cut Pemex's tax burden, meaning
Sheinbaum should not have to spend as much keeping the company
afloat, her aides said.
    Since taking office in 2018, Lopez Obrador, restricted by
law to one term, has cast his government as defender of a poor
majority over a wealthy, corrupt minority bent on carving up
state-owned assets like Pemex and CFE for its own gain.
    His policies have sparked clashes with investors. The
Economy Ministry currently lists more than two dozen active or
planned investor disputes against Mexico.
    Most do not detail damages sought, but eight of them total
over $6 billion, including $1.9 billion U.S. firm Vulcan
Materials is seeking.
    Beyond that are private commercial suits and a broader
dispute under a North American trade deal that the U.S. and
Canada launched over treatment of their energy firms which could
end up costing Mexico billions, economists say.
    Privately, Sheinbaum has sought to reassure investors they
will have the legal certainty many feel has been lacking under
Lopez Obrador, aides and executives say.
    Andres Rozental, a business consultant and former Mexican
deputy foreign minister who has attended closed-door business
meetings with Sheinbaum, said she seemed "more cognizant of the
need for Mexico to change its energy policy." 
    In a recent private meeting with executives in the state of
Jalisco, a recording of which Reuters heard, Sheinbaum said she
had never opposed private investment but that she, like Lopez
Obrador, was against corruption that bred inequality.
    She highlighted opportunities presented to Mexico by
nearshoring and the need for infrastructure to support economic
growth and social development.
    
    NEARSHORING
    Some energy firms have avoided suing Mexico, hoping the next
government will be different, said Carlos Vejar, an arbitration
attorney at White & Case and former Mexican trade negotiator.
    But Vejar said he had never seen so many active arbitration
cases against Mexico. "This all adds to the pressure for the
next administration to change policy", he said.
    Mexico's economy is poised to grow around 3.5% this year,
lifted by signs of nearshoring investment. Still, a lack of
green energy infrastructure has given pause to some
multinationals eager to reduce their carbon footprints.
    "I think we're not understanding the profundity of what the
opportunity of nearshoring, relocalization means," Foreign
Minister Alicia Barcena said last month, saying Mexico needed to
"get a move on" or risk losing out to rivals like Vietnam.
    In 2024, election year spending is set to widen Mexico's
budget deficit, which along with the makeup of Congress, could
steer political debate toward private investment.
        Nearshoring has increased demand for energy
infrastructure, and state firm CFE cannot meet it alone, said
Rafael Espino, a senator in Sheinbaum's National Regeneration
Movement (MORENA).
    "Energy supply is extremely important to protect
nearshoring," he said. "There's not enough public money to
invest, there need to be schemes to lift private investment."

 (Reporting by Dave Graham; Editing by Christian Plumb and David
Gregorio)
 ((dave.graham@thomsonreuters.com; +52 55 5282 7146; Reuters
Messaging: dave.graham.thomsonreuters.com@reuters.net))