Mexico Seeks To Revise Private Pipeline Contracts

(Wall Street Journal, Anthony Harrup, 11.Feb.2019) — President Andrés Manuel López Obrador said the Mexican government wants to revise natural-gas pipeline contracts with private companies under which the state-owned electric utility is paying even when it hasn’t received fuel.

Mr. López Obrador on Monday lashed out at former government administrations and energy officials who he said have decimated the state power utility Comisión Federal de Electricidad, or CFE, through the privatization of the energy sector.

Mr. López Obrador, who has been highly critical of changes that reduced state control of the sector, said there are seven nonworking pipelines for which CFE is paying. Under the contracts, the utility guarantees that it will use capacity on the pipelines and also has to pay if projects are interrupted for reasons beyond the control of the companies.

“All of this has affected CFE’s finances,” he said, adding that the government wants to reach voluntary agreements with companies to revise contracts and avoid legal battles.

CFE Chief Executive Manuel Bartlett, a veteran politician and longtime opponent of private involvement in energy, said the payments cost the company five billion pesos ($260 million) last year and would cost it another 16 billion pesos this year unless the contracts are renegotiated.

He said Grupo Carso , a conglomerate controlled by billionaire Carlos Slim, Sempra Energy ’s unit Infraestructura Energética Nova, or IEnova, and TransCanada are among the companies that are involved.

IEnova halted service to CFE on part of a pipeline in northwestern Mexico in August 2017 after it was damaged by communities opposed to its operation, and the company has been unable to restart it because of the local opposition.

IEnova didn’t say whether it would renegotiate, but said all its contracts with CFE were awarded under “open and transparent international tender processes under international industry standards.”

TransCanada said it welcomes the opportunity to work with CFE and the Mexican government to solve issues preventing the completion of projects in Mexico. But the payments are part of force majeure provisions included in the pipeline contracts, not fines or subsidies, TransCanada said. “Our commitment to Mexico is as strong as when we first arrived over 20 years ago.”

Carso said that of the three pipeline contracts it has with CFE, two have been operating for more than two years while a third, a 620-kilometer line in northern Mexico, has been held up by problems of rights of way on some stretches.

“The point of building gas pipelines to supply CFE with natural gas is to lower the cost of producing electricity in Mexico using environmentally friendly fuel,” Carso said.

A company spokesman said Carso is willing to talk to the government to resolve the delays in the pipeline construction as soon as possible, which he said would be of the most benefit to CFE.

Mexican officials made no specific mention of contracts with independent power producers that sell electricity to CFE, but Mr. López Obrador urged private companies to help keep electricity prices from rising. He added that he doesn’t aim to overturn the energy overhaul passed under his predecessor.

Mexico’s electricity industry was nationalized in 1960. Laws were changed in 1992 to allow private companies to generate power for their own use or for sale to CFE, and the industry was further opened to private investment in 2013 with an overhaul that included the creation of a wholesale electricity market.

The construction and operation of natural-gas pipelines by private companies has been allowed since 1995. CFE backed many of the projects, offering long-term contracts to secure supplies as the utility turned to natural-gas-fired plants to reduce reliance on heavier fossil fuels such as fuel oil.

The push to ensure adequate fuel supplies made CFE a significant player in the Mexican natural-gas market as production by state oil company Petróleos Mexicanos declined rapidly and Mexico relied increasingly on imports from the U.S.

Mr. López Obrador said CFE aims to revive existing hydroelectric plants for clean-energy generation and will cancel plans to withdraw older generating plants from operation. CFE currently generates around half of Mexico’s electricity and is the only transmission and distribution company.

Since Mr. López Obrador took office on Dec. 1, the administration has canceled an auction for CFE to buy clean energy under long-term contracts and called off bidding for the construction of a power-transmission line from southeastern to central Mexico, citing economic conditions.

Write to Anthony Harrup at anthony.harrup@wsj.com

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