AMLO Cold in His Intentions to Reform the Energy Sector in Mexico

  • AMLO  wants to nationalize the energy industry
  • In order to achieve that he intends to change the constitution
  • Both actions could have great consequences for the country internally and externally
AMLO - Mexico
Source: El Pais

Why is López Obrador cold?

Answer: Unpopular attempt at constitutional reform. 

Andrés Manuel López Obrador (popularly known as AMLO) attempts to introduce a reform of the energy sector in his country. His main goals are to limit private participation and to favour public companies, namely, the Federal Electricity Commission and PEMEX. In order to achieve this, he had an electric reform approved in March that would bring about changes to the Electric Industry Law and the Hydrocarbon Law. 

These changes would include setting new conditions for the procurement of licenses to operate in the electricity sector. They would also allow the Government to temporally suspend licenses that had already been granted. Finally, only the State would be able to produce lithium, a very valuable element because it is used for electric car batteries, for example, an increasing market. 

Nevertheless, more than 300 appeals against these changes were submitted by the private companies affected. Consequently, several judges ordered a general suspension of the reforms only a couple of hours after their entry into force. Some law experts claim that this was the obvious outcome of the measure, but apparently, AMLO didn’t expect such a big response. This is why he has now announced that he intends to change the constitution so that the appeals on the grounds of unconstitutionality won’t have any effect.

However, it will not be as easy as that because he needs a qualified majority of two-thirds in both Chambers to change the constitution. After the Federal Elections that took place on the 6th of June this year, his party obtained an absolute majority at the lower Chamber, but lost majority in the Senate. This means that to attain the qualified majority in both Chambers, he will need the support of the opposition.

More concretely, he will probably need the support of the PRI (Partido Revolucionario Institucional) the historical enemy of AMLO and the party that carried out the liberalisation of the energy market that he now intends to reverse. It seems hence unlikely that they will give him the support he needs. However, they have not completely rejected the idea so far. 

Who is changing AMLO’s temperature?

Answer: Companies, opposition parties, and civil society organisations are doing their best to stop AMLO from implanting all these reforms.

After the new laws were approved the last spring, more than 300 appeals were submitted on the grounds of unconstitutionality. This is significant because AMLO’s success is heavily based on his capacity to draw people’s support. Due to this high number of appeals, judges have carried out a general suspension of these laws’ implementation until the trial is over. The litigation could last up to three years if brought to the Supreme Court, which has already happened. In fact, the Federal Commission of Economic Competency has appealed directly to the Supreme Court and AMLO trusts that this Court will agree with him. 

Nonetheless, he is now seeking to modify the Constitution so that the appeals will have no legal backup. Said appeals refer to unconstitutionality because of the freedom of economic competency and some also because of the right to a healthy environment. Still, as already explained, it is doubtful that the qualified majority needed to modify the Constitution will be achieved. 

Additionally, critics do not only come from inside the country. AMLO’s intentions have not received a warm welcome in Mexico’s Northern neighbour either. Indeed, many of the private companies that currently operate in the Mexican energy sector and that would be negatively affected by these reforms are US companies. Some critics claim that were these reforms implanted, it would worsen US-Mexico relations and that it would even violate the North American Free Trade Agreement (Nafta).

However, it is important to note that this agreement was replaced with the USMCA (United States Mexico Canada Agreement) last year. In Article 8.2(a) of this agreement, the US and Canada recognize Mexico’s sovereign right to reform its Constitution and this same article refers specifically to Mexico’s ownership of all its hydrocarbons. Therefore, if AMLO’s intended reforms do succeed, maybe the US will bring this matter to an arbitrary mechanism for it to decide if they violate the agreement or not. 

What is driving AMLO?

Answer: Mainly, AMLO wants to reverse the liberalization carried out by the former Government. 

AMLO’s ideology is the main reason why he wants to carry out these reforms. Mainly, he is against the liberalization carried out by the former President, Enrique Peña Nieto. The point is that Mr. Peña Nieto belonged to the PRI, that is, the Party which should support AMLO’s project to change the Constitution. Yet another reason why AMLO is cold in achieving the number of votes needed to carry his plan through.

To begin with, the PRI and Morena, AMLO’s Party, have always been confronted with each other, mainly because of their opposing ideologies. Also, because it doesn’t seem like it would be a smart political move to support another party in the undoing of a former reform carried out by your own party. Indeed, it would probably weaken the party’s image by undermining its credibility. 

Furthermore, AMLO is seeking to privilege the Federal Electricity Commission and PEMEX, that is, the public energy companies of the country. More concretely, PEMEX is highly indebted, and the Government intends to save it from collapse. What is more, AMLO seeks to undermine private companies, most of which are foreign. In other words, his intention is to favour national production. 

What does this mean for you?

Answer: The energy reform is not the most worrisome one of the ones AMLO is aiming at, but it is significant and could have an impact on the Mexico-US relations. 

AMLO’s intentions to change the constitution does not only aim at a reform of the energy sector, he is also planning two more, namely, reforms to the electoral and security sectors. However, it is as of now the one most talked about and therefore, the clearest. Still, the other two could have greater consequences for the country, so we will have to remain alert to see how they develop. Indeed, modifying a constitution is always a delicate matter and can have great consequences, so it must not be taken lightly. 

Nevertheless, nowadays it seems unlikely that AMLO will succeed in implementing the changes he wishes. The main reason for that is the fact that he needs his historical enemy’s support, but it is also important to note that the PRI has not yet completely rejected the idea. Therefore, it may be that the reforms are finally implemented. However, this wouldn’t be good news. First of all, the public companies that AMLO intends to favour produce energy in a more polluting way than most of the private ones. Second of all, the public companies alone cannot respond to the energetic demand of the country, as much as AMLO continues to claim the contrary.

Finally, this reform will probably entail an increase in costs for the public. Finally, beyond the consequences that these reforms would have on Mexico, it could also have an impact on its relations with its neighbour from the North, which have not been at their best recently, since most of the private companies currently operating in Mexico are US companies. So, if the energetic reform is finally approved, it is likely that Mexico’s neighbours will try to use the USMCA agreement to stop them from being carried through.