Mexico's opposition blocks constitutional reform in power sector

Mexican opposition lawmakers late on April 17 blocked an initiative presented by President Andres Manuel Lopez Obrador to modify the constitution to increase the dominance of state utility CFE in the domestic power market.

Late on April 17, after almost 12 hours of heated discussion and debate, 223 Mexican lawmakers from opposition parties voted to block the initiative presented by the president. The initiative would have eliminated competition in the Mexican power market by prioritizing CFE over other power producers; increased the use of natural gas for longer, and likely delayed energy transition, according to observers.

The president's Morena Party and its allies in Mexico's lower House of Congress, which neeed a two-third majority to modify the constitution, obtained only 275 votes -- roughly 60 votes short of the required majority.

Although it was expected by most, the move was welcomed by observers as the reform was seen as the last major hurdle faced by companies in the remaining years of Obrador's administration, who has made it his priority to strengthen state monopolies.

"This restores the sector's constitutional certainty," Severo Lopez Mestre, an independent consultant and former government official wrote in his Twitter account following the vote.

The federal government decided to push for the reform after previous attempts to modify the law in favor of CFE had been blocked in courts. On April 8, a Supreme Court decision on those cases brought them a step closer to a final resolution in favor of companies.

Now that the reform is blocked, the market will only have to face the modifications made to the law on the power sector, which can be challenged with the result of the vote at the Supreme Court, according to lawyers.

However, market observers are still skeptical this will change the investment environment. The rules in the market are still not completely clear, and the government could still try to block the participation of private players using other tools, as they have in the last three years, sources have told S&P Global Commodity Insights.

Many investors believe that conditions will not improve in Mexico until 2024, when a new president comes in.

There is a long way ahead for Mexico in the power sector, Lopez Mestre wrote in his Twitter account. "What happened today in Congress is a great step, but it is only the beginning," he said.