Electricity Rates Become Key Issue Ahead of Upcoming Congressional, Gubernatorial Elections

SourceMex Economic News & Analysis on Mexico, April 23, 2003 | Go to article overview

Electricity Rates Become Key Issue Ahead of Upcoming Congressional, Gubernatorial Elections

Electrical power rates have become a tool to influence the upcoming July 6 gubernatorial and congressional elections. The elections are expected to be extremely competitive, with public-opinion polls indicating the possibility of close elections between Fox's center-right Partido Accion Nacional (PAN) and the former governing Partido Revolucionario Institucional (PRI). The center-left Partido de la Revolucion Democratica (PRD) is also expected to make some gains.

A recent poll by the Mexico City daily newspaper Reforma showed 40% of the likely voters supporting the PAN, 36% the PRI, and 17% the PRD. The poll was conducted nationally on April 12-14.

An earlier public-opinion survey by the polling organization Mitofsky in March showed the PRI with an advantage over the PAN, but a higher percentage of respondents were undecided.

Senate approves bill to reduce power rates

In what is seen as political posturing ahead of the elections, the opposition parties in the Senate approved an initiative that would reduce electricity rates throughout Mexico. The measure, passed in early April, reverses three decrees enacted by President Vicente Fox in February 2002, which phased out some government subsidies for electricity (see SourceMex, 2002-02-06).

Senators from the PRI, PRD, and the Partido Verde Ecologista Mexicano (PVEM) approved a plan to substitute the decrees enacted by Fox with a scheme that would set rates for electrical power based on the climatic conditions in a particular region and the time of year.

PAN senators opposed the changes but abstained rather than vote against the measure. PAN Sen. Juan Jose Rodriguez Prats warned that the changes proposed by the PRI-PRD-PVEM initiative could be very costly to the two state-run electrical power utilities, the Comision Federal de Electricidad (CFE) and the Compania Luz y Fuerza del Centro (CLFC).

"This initiative had a clear electoral motive," said Rodriguez Prats, who chairs the Senate energy committee (Comision de Energeticos).

PRI Sen. Oscar Luebbert disputed Rodriguez's charges, saying that Fox was the one who had acted to influence the elections. For example, said Luebbert, the president unilaterally reduced electricity rates in Sonora and Baja California states in January. At that time, Fox said he was merely responding to the demands from Sonora state residents that the government cut excessively high power rates.

"The president was the first to make electrical rates a political issue by reducing rates in states where gubernatorial elections are occurring this year," said PRD Sen. Demetrio Sodi de la Tijera.

Luebbert said the Congress appealed to Fox to reduce electricity rates in the north and other regions in late 2002, but that request was ignored by the president.

Sonora, which is governed by the PRI, is one of a handful of states that will be holding a gubernatorial election in addition to congressional races.

The Senate measure to reduce rates has encountered mixed reactions among PRI members in the Chamber of Deputies, which has yet to pass similar legislation. Among the skeptics is Deputy David Penchyna Grub, who worried that the reduction could derail a deeper reform to the electricity sector.

The PRI and the PRD have managed to block the Fox administration's proposals to bring private investment into the electricity sector, including a proposal the president sent to Congress in late 2002 (see SourceMex, 2002-09-25). The administration has continued a policy implemented by his PRI predecessors to construct and manage some private power plants, but also huge projects like El Cajon in Nayarit state. The government recently awarded a contract to construct El Cajon to Mexican engineering company Grupo ICA.

The two opposition parties have deferred any vote on reforms to the electrical sector until at least the end of 2003 because of the upcoming elections (see SourceMex, 2003- 03-05). One of the key reforms that has been proposed would give the CFE and CLFC greater financial autonomy.

In the absence of debate on overall electricity reforms, the PRI and the PRD have focused on criticizing the rate structure implemented by Fox in 2002.

"This is not a band-aid measure," said Sen. Enrique Jackson Ramirez, the leader of the PRI delegation in the Senate. "We are trying to correct a problem faced by consumers in more than half the country."

Some PRI members in lower house oppose rate reduction

Still, the measure has not gained automatic support among PRI members in the Chamber of Deputies, with legislators like Penchyna and Jorge Chavez Presa questioning the impact of the initiative on the federal budget.

Penchyna raised concerns that the funds used to restore electricity subsidies would almost certainly come from higher- than-expected oil-export revenues. "This money would have been channeled for infrastructure projects such as hospitals, schools, and highways," the PRI legislator said during a speech in the Chamber of Deputies.

CLFC and CFE officials also worry about the Senate proposal to reduce electricity rates on their budgets. CLFC director Luis de Pablo Serna said the move could cost the state-run power utility about 1.5 billion pesos (US$142 million), which could inhibit the company's ability to provide a reliable source of electricity to the Mexican capital and other regions in central Mexico.

Similar sentiments were expressed by the Centro de Estudios Economicos del Sector Privado (CEESP), which said the initiative could cost the government close to 12 billion pesos (US$1.13 billion). "If the lack of resources has limited investment in infrastructure in the electrical power sector, the new initiative could all but eliminate any new spending," said the CEESP.

PAN Sen. Fauzi Hamdan, who chairs the Senate finance committee (Comision de Hacienda), said Fox would have no choice but to veto the measure if approved by the Chamber of Deputies. "Where are we going to get the billions of pesos needed to implement the initiative," said Hamdan.

Some PRI senators warned Fox that a veto could affect his party's chances in the upcoming election. "Fox would then have to contend with popular discontent," PRI senators said.

Sen. Diego Fernandez de Cevallos, head of the PAN delegation in the Senate, said this possibility was much in the minds of members of his party in the upper house when they decided to abstain from voting rather than to oppose the initiative outright. Fernandez de Cevallos chose to be absent from the Senate floor during the vote.

PRI Sen. Alejandro Gutierrez, who did not support the initiative, said his party would look for ways to pay for the increased costs of restoring the subsidies, such as cracking down on fuel thefts from the state-run oil company PEMEX, which are expected to cost the government an estimated 16 billion pesos (US$1.52 billion) this year.

The CFE, meanwhile, has plans to raise additional funds this year through listings on the stock market (Bolsa Mexicana de Valores, BMV) and other domestic and international financial markets. CFE officials said the agency could issue up to 12.2 billion pesos (US$1.15 billion) in stock at the BMV.

CFE officials raised the possibility of obtaining some funding through the retirement-savings program (Administradoras de Fondo del Retiro, AFOREs) and other domestic investments. [Note: Peso-dollar conversions in this article are based on the Interbank rate in effect on April 23, reported at 10.53 pesos per US$1.00] (Sources: Associated Press, 03/14/03; Spanish news service EFE, 03/16/03; The New York Times, 03/18/03; Notimex, 01/16/03, 04/14/03, 04/15/03; La Cronica de Hoy, 01/17/03, 03/17/03, 03/24/03, 04/11/03, 04/15/03; Agencia de noticias Proceso, 04/15/03; El Sol de Mexico, 04/15/03, 04/16/03; El Financiero, 03/17/03, 04/21/03; Milenio Diario, 01/16/03, 04/11/03, 04/14/03, 04/16/03, 04/21/03, 04/22/03; La Jornada, 01/16/03, 04/11/03, 04/14/03, 04/15/03, 04/23/03; Reforma, 01/16/03, 01/17/03, 03/18/03, 03/31/03, 04/11/03, 04/15/03, 04/18/03, 04/21/03, 04/23/03; El Universal, 03/31/03, 04/11/03, 04/23/03)

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Electricity Rates Become Key Issue Ahead of Upcoming Congressional, Gubernatorial Elections


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