“I would say there’s a sensation that you can see a light at the end of the tunnel,” José María Lujambio, partner and energy practice director at Cacheaux, Cavazos & Newton, told NGI’s Mexico GPI. “It is a feeling that deterioration in the [Mexican energy] sector has ended and members of the industry are starting to see some signs of improvement.”
Lujambio added: “There is an increase in activity in the early development of projects that could be operational in five to six years, and that is something we haven’t seen in the sector in a while. There’s a renewed interest in Mexico after a period of dormancy.”
Lujambio, who has been a partner and energy practice director at the law firm of Cacheaux, Cavazos & Newton since 2014, also serves as the Secretary of the Board of Directors at the Mexican Solar Energy Association, ASOLMEX. Previously, he served as the Legal Affairs General Director at the Comisión Reguladora de Energía, CRE, from 2009-2012. Lujambio also spent time as a senior researcher at the think tank CIDAC, now Mexico Evalua, and taught energy law as a professor at the Technological Autonomous Institute of Mexico, ITAM.
Lujambio holds a master of laws degree in energy from the University of Texas at Austin, a master’s degree in fundamental rights from the Universidad Carlos III in Madrid, and a bachelor’s degree from ITAM.
Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, offers the following question-and-answer (Q&A) column as part of a regular interview series with experts in the Mexican natural gas market. Lujambio is the 94th expert to participate in the series.
NGI: The big topic in the industry the last few months, and particularly this week, has been the United States-Mexico-Canada-Agreement, or USMCA, and the energy consultations being discussed between the three North American countries. What do you expect regarding the USMCA in the next few weeks?
Lujambio: I think we will see visible progress in the next few months. In the last weeks of 2022 we saw the Economy Minister making the effort to present a work plan to address the consultations. This happened when Raquel Buenrostro assumed the role, and she gave the signal that there is a route that has been mapped out and that the government is clear about what are the real topics that need to be examined with their counterparts in the U.S. and Canada, certainly not only national sovereignty.
I hope that the presidents of the three countries had enough opportunity to discuss the energy consultations this week in Mexico City. In the official declaration there is language about acting rapidly to accelerate the energy transition by implementing clean energy solutions, but not much more. Let’s be aware of some concrete details that will indicate the tone of the governments towards the next stage of the consultations.
Something very important that will happen soon, and is directly related to the consultations, is the judicial discussion about the amendments to the Electricity Industry Law, LIE. It seems that the federal government has requested the Supreme Court to review the appeals in the amparo lawsuits, which are currently located in collegiate circuit courts.
Many of the generation companies that compete with the Comisión Federal de Electricidad, or CFE, already obtained favorable rulings from district judges, declaring that LIE amendments violate their constitutional rights. The collegiate circuit courts, which are higher ranking than those judges, are reviewing the appeals they have against the initial rulings. What López Obrador wants is that the Supreme Court exercises the authority to assert jurisdiction, which in the U.S. is basically a Writ of Certiorari. These amparos are certainly interesting and consequential matters, as required by law for the Supreme Court to decide to have the final word.
When the federal government requested this recently, it was somehow surprising. I had the impression that the president no longer wanted to make a lot of public noise in the context of the energy consultations because there is some likelihood that the judicial branch would confirm the amparo protections and invalidate the amendments to the LIE.
So, if the president is aware of this real possibility, it would be far less public and a far lesser blow to him for the collegial courts to uphold the amparo rulings than the Supreme Court, which is obviously much more visible politically. If the latter happens to be the case, he could still point to the Supreme Court as the institution responsible for failing to protect the CFE and strengthen the state electricity company. We would expect the President to demonize the Supreme Court for acting against the “national” interest.
NGI: One of the main fears of the USMCA consultations has been that the issues will be taken to a panel for determination. Do you think that still could happen?
Lujambio: Given that there are four different topics that are being discussed in the consultations, there would have to be an analysis about what is going to happen in the future regarding each of them. So, as to the LIE amendments, if amparo rulings are upheld by the judiciary at any level, that would be the end of the issue. And this is the most important topic of the four at stake. For now, at least seven of the Supreme Court justices have already argued that they deem it unconstitutional to prioritize CFE in the dispatch of electricity.
As to the second issue, we’ve seen lately how the CRE has become more active and has begun to reactivate and resolve many procedures, even granting some permits, which were frozen for considerable amounts of time. It seems that Mexico is attempting to demonstrate its political will so that the U.S. and Canada deem this problem as resolved at some point.
The other two topics of the USMCA consultations are more tied to the hydrocarbons industry, and were set forth by the U.S. only, not Canada. One is diesel fuel and its sulfur levels, where there will have to be some sort of technical and financial agreement. I think this is a topic where an agreement is relatively easier if there could be a commitment by Petróleos Mexicanos or Pemex to really soon produce diesel that is as clean as fuel produced by other companies such as Valero or BP, in exchange for some kind of collaboration from the U.S. to assist in lowering the sulfur levels.
And on the fourth point, I think the solution is also relatively simple, which would be for the Mexican Energy Ministry to annul the order that enforces Cenagas to not transport natural gas that wasn’t purchased from the CFE or Pemex at the U.S. border. It is not known that there have been many companies in the natural gas industry that have filed amparo lawsuits against the Sener order to Cenagas.
Nevertheless, the Federal Antitrust Commission, COFECE, did file a constitutional controversy before the Supreme Court. This is a different story than the challenge to the LIE amendments, where it’s known that all companies that are developing or operating power plants sued Mexico’s government and Congress to defend themselves. In the case of the order by Sener to Cenagas, only a few distributors and marketers filed lawsuits. It seems that natural gas companies have been generally more cautious in their fights against this administration. So, as a result, maybe the U.S. is less willing to fight for this issue so strongly.
NGI: You mentioned you work with U.S. companies that operate and are interested in operating in Mexico. What are their opinions on the state of the Mexican energy industry currently?
Lujambio: I would say there’s a sensation that you can see a light at the end of the tunnel. It is a feeling that the deterioration in the sector has ended and members of the industry are starting to see some signs of improvement. I would say that is the general feeling. Of course, you have to put that into context for all types of companies, in each segment of the industry, which have distinct problems and concerns.
The largest developers of energy generation projects, for example, are now beginning to consider the purchase of projects under development that have been stalled so they could reactivate them in the medium term. They are also starting to think again about the most attractive substations to interconnect and to acquire neighboring plots of land.
So, I think those types of early development projects are starting to be considered, with the understanding that more activity in the industry is soon to occur and that new or delayed projects may soon begin operation. There is an increase in activity in the development of projects that will be operational in five to six years, and that is something we haven’t seen in the sector in a while. There’s definitely a renewed interest in Mexico after a period of dormancy.
NGI: In addition to the reactivation of CRE permits, it seems the CFE, which awarded large contracts to several large private companies last year, is also sending a message to the industry that the state company is now again open to private investment. Do you see it that way?
Lujambio: I think that the CFE is interested only in empowering and strengthening itself. I think that is the priority for the company, and they’re less interested in reactivating the energy market with solid conditions of competitiveness. The CFE acts as the anchor for new infrastructure projects, which serves the objective of making the state electricity company even more powerful.
So, regarding these…
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2023-01-13 20:53:49
