Mexico’s Power Generation Sector

July 15, 2004

This article was first published in the July 15, 2004, issue of Latin America Energy Report.  Latin America Energy Report is a twice-monthly newsletter published by Dow Jones and WorldTrade Executive Inc.  For questions regarding this report, please contact Judy Kuan, Editor, at JKuan@wtexec.com or by telephone at 1 (978) 287-0301.

INTRODUCTION

Mexico’s power generation sector is facing a possible crisis in the near future. The Federal Government has estimated that over 27,000 megawatts of additional power generation capacity will be needed by 2009 to avoid a power crisis in the country. Since 1960, the electricity sector has been reserved to the State. Private participation in generation activities is limited by law and the funds to increase the Country’s generation capacity will have to come from the federal budget. 
Despite several efforts to amend the Constitution to allow private participation in power generation activities, opposition from different political parties has prevented the initiatives from being discussed in Congress.
The highly politicized energy reform is not the only problem that the Fox’s administration is currently facing to modernize the industry. Congressmen opposing any type of privatization of the energy industry filed a complaint with the “Auditoría Superior de la Federación” (“ASF”) asking it to review the legality of the generation permits granted by the “Comisión Reguladora de Energía” (“CRE”) to private parties. The ASF found that the generation permits granted by the CRE were illegal and contrary to the Constitution. The Energy Ministry filed a constitutional challenge before the Supreme Court alleging that the ASF does not have authority to decide on the legality of the generation permits granted to private parties by the CRE. The Supreme Court admitted the constitutional challenge and a final resolution is pending.
The Fox administration has been unable to obtain a consensus towards energy reforms, and now it is facing a legal battle to maintain the already damaged confidence of private investors.

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