MercoPress. South Atlantic News Agency

Canadian investors question Mexican government energy policy, which privileges the state's role

As Mexico celebrated a new trade deal with the United States and Canada on July 1, a group of Canadian energy investors warned their government that Mexico could already be violating the agreement for failing to respect contracts.

In a letter to Canada’s Deputy Prime Minister Chrystia Freeland, Finance Minister Bill Morneau, Foreign Minister Francois-Philippe Champagne and other officials, four companies voiced concern their Mexican investments were under threat and urged the government to press Mexico on the matter.

The letter adds to evidence of frustration among investors over energy policy under the administration of President Andres Manuel Lopez Obrador just as Mexico is trying to revive its battered economy from the impact of coronavirus.

Canada, a longstanding ally of Mexico and one of the country’s main sources of foreign direct investment (FDI), has already raised concerns about Lopez Obrador’s energy policy.

Arguing that Mexico must carve out a bigger role for the state on energy policy and become more self-sufficient, Lopez Obrador says previous Mexican governments skewed the market in favor of private investors, pushing up prices for the public.

The president has sought to renegotiate billions of dollars worth of contracts to get better terms for taxpayers.

Foreign companies, which were granted more scope to invest in Mexico under a 2013-14 energy reform enacted by Lopez Obrador’s predecessor, deny they have raised costs for the public. They say the government is not honoring existing deals.

In the letter, Canadian Solar Inc, Atco Ltd, Northland Power Inc and JCM Power cited decisions to suspend testing of new renewable energy plants and to limit development and operation of power stations as steps that could put their projects in Mexico in jeopardy.

Mexican tribunals have temporarily suspended some of the measures, pending a Supreme Court decision. However, disputes over a range of policy decisions on energy extend back well into last year and have fanned uncertainty among investors.

Six weeks previously, Canada and the European Union sent letters to the Mexican government to warn that its changes on energy policy could negatively affect billions of dollars in renewable power generation projects.

Over the past two decades, Canada has been the third-biggest source of foreign investment in Mexico, after the United States and Spain, according to Mexican government data. Last year, total Canadian investment was worth more than $2.9 billion, or some 8.7% of the total, the figures show.