Mexico energy sector braces for coming political recalibration

• President pushes state energy dominance ahead of 2021 elections
• Opposition parties in disarray
• Current administration’s strategy could backfire

MEXICO CITY (ICIS)–Less than a year away, Mexico’s mid-term elections are looming, as the energy sector tries to calculate what the political recalibration could mean.

President Andres Manuel Lopez Obrador, or AMLO, has made clear his eye is fixed on the July 2021 date, as he disparages the opening of the energy sector and emphasises the need for a bigger role for state-run companies Pemex and CFE in the economy, as a way of shoring up the two companies’ finances.

Whether this strategy will work in gaining the needed voters to hold both the Senate and Chamber of Deputies as well as several state congresses is unknown. AMLO’s current approval rating has dropped to about 56%, down from 80% at the beginning of his administration, as the management of the coronavirus has led to more than 60,000 deaths and predictions the economy could contract by as much as 12% by the end of the year.

Yet even with a weakened position, AMLO still has a powerful platform and a majority of support, all of which could be leveraged to expand the power of his MORENA party, which with its allies holds thin majorities in both federal houses but less than the two-thirds majority needed to make changes to Mexico’s constitution.

“Right now, it is a coin toss,” said a former senior regulator. “I think that if I were to put all my money on it, I would be really afraid of taking a strong stance one way or other.”

OPPOSITION

One of the biggest advantages for AMLO is the poor condition of the opposition, who were weakened by scandals in the previous administration, a weak economy and the growing threat of organised crime – all of which helped sweep AMLO into office.

“Looking ahead, we should be speaking about how the opposition is in disarray,” said Manuel Molano, the chief economist for the Mexican Institute for Competitiveness (IMCO), a Mexico City-based think tank. The long-ruling PRI party has aligned with AMLO’s MORENA party, while the right-leaning PAN party is trying to reorganise after former PAN president Felipe Calderon left to establish his Mexico Libre party. The lack of organised resistance, Molano said, plays to the administration’s advantage.

Sector observers say that even if he could gather the votes prior to the mid-term elections, he is not expected to officially try to unravel the energy reform laws, if only to honor the promise he made during his campaign. A memo leaked in late July outlining his opposition to the energy reform and ideas for overhauling the sector mentions the idea of new legislation, but stops short of calling for it at this time, the former senior energy regulator noted.

“AMLO’s administration has always said that they would respect the constitutional framework for the first three years of his mandate,” the official said. “Even though there has been a lot of noise, his position has always been the same, even in the memo.”

STRATEGY

Instead, the president appears to be using an evolving corruption case involving former Pemex CEO Emilio Lozoya to make broader accusations about the level of corruption in politics having led to the energy reform legislation.

AMLO’s strategy comes less than a month after the controversial July memo was leaked. The problem, observers point out, is that to legally enact these changes, it would not be enough to pass new laws enabling them. Francisco Salazar, former head of energy regulator CRE, highlighted the challenge AMLO faces.

“The problem he has is that the basic principles are embedded in the constitution,” Salazar said. “It is not enough to change the legislation. If he wants to do what he is saying in that memo, he should go for a profound reform of the constitution, otherwise he will have a problem in the sense that anything will challenged by the court.”

Others caution the current relative strength of the MORENA party could backfire, if the country continues to suffer economically, and voters once again look to a change of regime.

“What I fear is that this really collapses the party system – that in 2024 that we end up electing some kind of Bolsonaro, very law and order and very horrible,” said the former senior regulator. “That is my fear. When you start playing with fire, the enemies will come back with something.”