HOUSTON (ICIS)--State-run utility CFE has published a modification that creates a new unit of the business to monitor the purchase and consumption of gas and LNG, perhaps signaling an attempt to further centralise the organisation and possibly remove competition incentives put in place by the energy reform. The modification was published in Mexico’s official gazette, known as DOF in Spanish.
“Basically the administration, because it was unable to remove CFEnergia and CFE International from the [natural gas] transport contracts, is putting in place a supervision measure which I would view as interference,” said Gonzalo Monroy, managing director of GMEC and a former senior official at energy ministry SENER. He was referring to the fuels trading and international gas purchasing arms of CFE. CFE did not immediately respond to a request for comment.
Under the changes implemented by the 2013-2014 energy reform, CFE’s various power generation subsidiaries are not obligated to purchase fuels for their plants from CFEnergia, though they often do.
It seems, however, the message from the creation of the CFE supervision unit could be that this freedom may be curtailed.
“The CFE modification appears to be aligned with the March modification of the terms of the strict legal separation…and it seems the implicit message in the modification and creation of the new unit is generation units should buys fuels from CFEnergia,” said Andrea Calo, director of Mexico market intelligence at Customized Energy Solutions. “The goal now [under the new administration] is for CFE generation as a whole to take advantage of economies of scale to be more efficient.”
Daniela Flores, a former official in energy ministry SENER’s natural gas unit now consulting at Mexico-based Talanza Energy, said she views the creation of the unit as odd. “The generation companies should be able to choose a gas supplier [CFEnergia or another] and be capable of managing their capacity so they can take advantage of peaks and valleys.”
In a break from previous post-energy reform regulations governing CFE, the latest modification refers to the company’s generation units, not by their individual names but simply as “the generation units”. CFE director Manuel Bartlett has previously publicly expressed desires to break with the vertical and horizontal separation in the company set in place by the energy reform. The modification states he is the one who proposed that CFE corporate “strengthen monitoring and control” of fuels marketing.
Another source said CFE leadership wants to control everything in a centralised manner and reunify all the generation units.
“But they have many internal conflicts between the six generation companies… In fact, there is a big conflict between CFE’s basic supply arm, CFE SSB, and CFE Calificados [a unit created by the energy reform] and it seems they have decided to keep CFE Calificados as a decoy while the strategy is to strengthen and migrate the greatest number of contracts and clients to CFE basic supply.”
Calo, however, questioned whether CFE Calificados customers would be willing to move back to CFE’s basic supply arm. She asked what rates would apply under such a scenario and if the rights of CFE Calificados customers would be considered.
It is currently unclear how long the legal process to create the new unit could take. The modification states the unit will not require new personnel or additional budget, but its responsibility of monitoring CFEnergia’s activities as well as the fuels consumption of all of CFE’s generation companies is challenging.
“It should not take much time [to implement the changes], but you also cannot underestimate how complex the learning curve can be,” said Gonzalo Monroy.
Calo is wary of the potential consequences of the administration’s latest change because it seems to introduce an obligation that is contrary to established law, something that could further rattle investors and the international financial community.
“How long are CFE, SENER, CENAGAS and the CRE going to be able to continue with the strengthening of state-run enterprises before the country’s credit rating takes a hit and is potentially pushed below investment grade?” asked Calo.