Mexico - Energy Privatization Opens the Way for Foreign Ownership: Allows US Companies to Exploit Labour and the Environment

Energy Privatization

Over the past twelve years Mexico has watched one industry after another disappear from state coffers. With the privatization of Telmex in 1989, Mexico's technocrats started a landslide of privatization that has engulfed, amongst hundreds of smaller industries, the highway, railroad, airline, and banking industries. As a result, Mexicans pay monopoly-rate phone bills, highways are bankrupt, passenger rail service has all but disappeared in rural areas, airfares are increasingly out of reach for Mexicans, and taxpayers' offspring will continue to pay the tab for the $100 billion USD 1995 bank bail-out. In 1992 Carlos Salinas quietly began the dismantling of one of the two bulwark industries still remaining (sort-of) in state hands -- the electric utility industry.
Mexico's electric utility industry is comprised of two state-run commissions: the Federal Electricity Comission (CFE) responsible for the majority of power generation, and Central Light and Power (LFC) in charge of distribution and consumer services. The Energy Regulatory Comission (CRE) regulates natural gas and electricity production and operation. Like the United States, the vast majority of electricity in Mexico is generated in thermoelectric power plants (75%) employing various types of combustibles. While the US currently relies on coal for combustion in the majority of generation facilities (51%) Mexico's primary combustibles are petroleum derivatives (67%). Both countries, however, have announced plans to shift the focus of future generation facilities to natural gas.
From the 1930's to the early 1990's, Mexico's electric utility industry was exclusively owned and operated by the State. Salinas reforms of Article 27 of the Constitution as well as other laws governing energy production and use in 1992 allowed private sector participation in power generation through the creation of seven different power producer arrangements. These arrangements allow a corporation to, upon approval by the CRE, sign an agreement to construct a generation facility to supply power to one specific user as well as to export electricity. In May 2001 Fox submitted a modification to the law governing the Electric Energy Public Service Law (LSPEE) in attempt to expand private sector participation in electricity generation by reducing restrictions on private power production as well as authorizing the Secretary of Energy to further adjust such restrictions -- circumventing Congressional approval.
Pointing to projected electricity needs in Mexico and the energy "crisis" in California, the Bush administration (with strong political ties to both petroleum and natural gas interests) as well as US legislators are pressuring the Mexican government to open up its electricity industry. Expansion of private participation under current initiatives would allow foreign electricity producers greater market share in Mexico as well as the opportunity to externalize environmental and labor costs by shifting production across the border. Furthermore, if generation capacity is expanded with natural gas-fired thermoelectric plants, the majority of new generation facilities in Mexico would be dependent on natural gas imports from the US and other foreign suppliers. Thus, a more likely motivation for the policy inclination is the estimated $18 billion USD natural gas market in Mexico over the next seven years.
US Energy companies are taking advantage of the new legislation and are currently constructing massive generation facilities along the US -- Mexican border. With projected pollutants in the thousands of tons per year, Mexico's sparse environmental regulations will allow the companies to lower production costs -- thereby increasing profits. While most of the electricity is slated for export to California and other US markets, excess power will be sold to the CFE. Unless new environmental legislation is implemented, local residents will be subject to increasingly polluted air and water. In addition, as the percentage of Mexico's power generated by private power producers increases, consumers could fall prey to the same extortionary rate increases that Californians have suffered under deregulation.
[Source: Global Exchange]