ICIS VIEW: Infrastructure plans signal key shift in Mexico
Claudia De La Rosa
02-Dec-2020
- Federal administration publicly lauds private sector contributions
- Key business leader embraces administration efforts
- Energy projects in public-private infrastructure plan unsurprising – sources
- CFE to now allow private sector majority participation in new plants
- Unclear who will operate natural gas projects in plan
HOUSTON (ICIS)–The federal administration’s
new public-private programme aimed at
bolstering Mexico’s economy shows the
president’s willingness to begin to acknowledge
Mexico’s difficult economic reality, which
could assist in further opening dialogue on
energy issues.
The energy part of the plan confirms the
administration has begun to realise how much it
needs the private sector to set up the economy
to recover. Creating a perception of economic
progress among the president’s voting base is
key for his party to maintain a majority in
Mexico’s chamber of deputies after June 2021
mid-term elections.
The plan announced on 30 November during
president Andres Manuel Lopez Obrador (AMLO)’s
morning press conference includes the Costa
Azul LNG plant that has been planned by IEnova
for more than two years.
It also includes six combined-cycle power
plants to be built for state-run utility
CFE.
Most of these plants were previously attempted
by CFE in unsuccessful tenders, but the entity
is now scheduled to partner with the private
sector to build them. According to the report
accompanying the announcement, private sector
participation must be greater than 50% of
investment for each project. Sources previously
said CFE efforts to use a new master investment
trust or its Fibra E investment vehicle would
likely prove unsuccessful for building new
plants like these on its own.
NATURAL GAS
Natural gas projects include two compression
stations and a pipeline already included in the
five-year gas planning document known as Plan
Quinquenal released in November.
Those plans were recycled from a prior
administration, according to a former
government official. The pipeline to cross the
Tehuantepec isthmus was in Plan Quinquenal as
the 247km Jaltipan-Salina Cruz pipe.
In addition to supplying a future trade
corridor and the existing Salina Cruz refinery,
the project is also supposed to connect to the
LNG export project the government recently
announced for Salina Cruz. That project was
absent from the 30 November announcement.
Daniela Flores, a former senior official in the
gas unit at energy ministry SENER and now a
consultant at Talanza Energy, said it is
unclear if these projects will be integrated
into the national Sistrangas pipeline system,
something that could complicate operations in
the future if CFE operates them.
Transmission system operator (TSO) CENAGAS is
charged with managing Sistrangas operations and
planning, though CFE owns some gas transport
infrastructure.
OUTLOOK
The administration’s recent plan for energy
will be considered at best unoriginal by some,
but it points to AMLO’s growing awareness of
the political consequences of abandoning
orthodox economic policies.
As his political base has increasingly felt the
repercussions of his unorthodox approach after
coronavirus’ spread and his popularity has
waned, AMLO has likely been influenced more
easily to re-examine his relationship with the
private sector.
This change is evident in the inclusion of
Carlos Salazar in the 30 November announcement
after periods of public rejection by AMLO.
Salazar is the head of Mexico’s powerful
business coordinating council CCE, and AMLO
allowed him to give a lengthy speech during his
daily press conference.
It focused on private sector involvement with
the plan, which Salazar said would extend into
a third set of projects to be announced at an
undisclosed later date.
Salazar was also included in the 5 October
conference announcing the first set of
public-private projects, but his November
speech was longer. Its focus on the merits and
commitment of the private sector to Mexico’s
economic recovery was likely aimed at garnering
support from a business sector fatigued by
overwhelming changes the administration has
made to labour, business and energy
regulations.
AMLO also initially refused to provide
significant emergency support to medium and
larger businesses. The increased collaboration
comes after the International Monetary Fund
(IMF) recommended on 6 October that the
government promote private sector involvement
in power projects. Mexico holds an IMF credit
line.
Though Salazar highlighted the 400,000 jobs the
public-private plan is expected to generate,
Mexico’s economic recovery is expected to be a
longer battle than in Brazil, Chile and Peru,
according to a 1 December outlook from Moody’s
Investors Service. The report says exporters
like Mexico will depend increasingly on China’s
economic outlook and international price
dynamics. Mexico is also dependent on tourism
and trade with the US, which are expected to
limit its economic rebound in 2021 along with
weak investment prospects and business
sentiment.
AMLO’s administration appears to have begun to
re-examine the importance of the business
sector. If the relationship between the two
proves fruitful, it could benefit AMLO and his
party politically and intellectually.
Claudia Espinosa
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