By Dave Graham
MEXICO CITY (Reuters) – The favorite to be Mexico’s next leader will likely be more open than her mentor President Andres Manuel Lopez Obrador to private investment in energy in order to help fund her renewable power push at a time of tighter public finances, aides, officials and executives said.
Former Mexico City Mayor Claudia Sheinbaum, front-runner to become Mexico’s first woman president in June elections, plans to boost clean energy usage while upholding Lopez Obrador’s pledge to keep at least 54% of power generation in state hands.
The president’s drive to tighten state control of energy has been one of the most contentious aspects of his agenda, and the next administration’s approach could go a long way to defining its economic fortunes, analysts say.
Sheinbaum has diverged little from Lopez Obrador on energy except for her vigorous advocacy of renewables.
But aides told Reuters she would have scope to lift private investment because the state should control significantly more than the 54% threshold by the time she took office.
“The role of private investment is going to be really important,” a close ally of Sheinbaum said.
Sheinbaum has given few details of her energy plans, but key pointers to how she views the challenge emerged from Reuters’ conversations with some two dozen serving and former officials, executives, politicians and aides privy to discussions with her.
They said they expected her to be more pragmatic about tapping private capital once in power, citing her awareness of factors including budget constraints, rising energy demand, and the need to avoid disputes like those that erupted under Lopez Obrador which could cost the state billions of dollars.
Sheinbaum has a lead of more than 20 points in most opinion polls over opposition rival Xochitl Galvez, who has pitched a more aggressive opening of the energy sector to private capital.
Responding to a request for comment, her campaign said Sheinbaum saw state control of at least 54% of power generation as “fundamental” and that she had no intention of changing it.
“In that sense, she guarantees there will be room for public and private investment,” it said in a statement to Reuters, which had sought comment on the key points of this article.
Her campaign did not address most of them, saying only there was information that was “imprecise” without elaborating.
Privately, allies of Sheinbaum said Lopez Obrador’s policies have made some foreign firms wary about “nearshoring” – moving operations to Mexico from Asia or elsewhere – and that funding her renewables plan with public money alone will be tough.
Three aides noted that Lopez Obrador’s recent purchase of Iberdrola energy assets should mean that as much as two-thirds of power generation is in public hands by the end of his term, giving Sheinbaum leeway to increase private investment.
Lopez Obrador has spent billions propping up Mexico’s fossil fuel-dependent energy giants, oil firm Pemex and power utility CFE. Sheinbaum, an energy expert decorated for her work on climate change, is emphatic about protecting the environment.
“We will accelerate the energy transition to renewable sources of energy, guaranteeing energy sovereignty,” the 61-year-old scientist said in November.
ARBITRATION
Lopez Obrador recently cut Pemex’s tax burden, meaning Sheinbaum should not have to spend as much keeping the company afloat, her aides said.
Since taking office in 2018, Lopez Obrador, restricted by law to one term, has cast his government as defender of a poor majority over a wealthy, corrupt minority bent on carving up state-owned assets like Pemex and CFE for its own gain.
His policies have sparked clashes with investors. The Economy Ministry currently lists more than two dozen active or planned investor disputes against Mexico.
Most do not detail damages sought, but eight of them total over $6 billion, including $1.9 billion U.S. firm Vulcan Materials is seeking.
Beyond that are private commercial suits and a broader dispute under a North American trade deal that the U.S. and Canada launched over treatment of their energy firms which could end up costing Mexico billions, economists say.
Privately, Sheinbaum has sought to reassure investors they will have the legal certainty many feel has been lacking under Lopez Obrador, aides and executives say.
Andres Rozental, a business consultant and former Mexican deputy foreign minister who has attended closed-door business meetings with Sheinbaum, said she seemed “more cognizant of the need for Mexico to change its energy policy.”
In a recent private meeting with executives in the state of Jalisco, a recording of which Reuters heard, Sheinbaum said she had never opposed private investment but that she, like Lopez Obrador, was against corruption that bred inequality.
She highlighted opportunities presented to Mexico by nearshoring and the need for infrastructure to support economic growth and social development.
NEARSHORING
Some energy firms have avoided suing Mexico, hoping the next government will be different, said Carlos Vejar, an arbitration attorney at White & Case and former Mexican trade negotiator.
But Vejar said he had never seen so many active arbitration cases against Mexico. “This all adds to the pressure for the next administration to change policy”, he said.
Mexico’s economy is poised to grow around 3.5% this year, lifted by signs of nearshoring investment. Still, a lack of green energy infrastructure has given pause to some multinationals eager to reduce their carbon footprints.
“I think we’re not understanding the profundity of what the opportunity of nearshoring, relocalization means,” Foreign Minister Alicia Barcena said last month, saying Mexico needed to “get a move on” or risk losing out to rivals like Vietnam.
In 2024, election year spending is set to widen Mexico’s budget deficit, which along with the makeup of Congress, could steer political debate toward private investment.
Nearshoring has increased demand for energy infrastructure, and state firm CFE cannot meet it alone, said Rafael Espino, a senator in Sheinbaum’s National Regeneration Movement (MORENA).
“Energy supply is extremely important to protect nearshoring,” he said. “There’s not enough public money to invest, there need to be schemes to lift private investment.”
(Reporting by Dave Graham; Editing by Christian Plumb and David Gregorio)
