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March 18, 2021

Latam

MEXICO: Energy nationalism and salvo against mining add to investor concerns

BY Nicholas Watson

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This week was always likely to see some anti-business rhetoric or gesture from President Andres Manuel Lopez Obrador (AMLO) given that today, 18 March, is the anniversary of the 1938 nationalization of the oil sector. To mark the day, AMLO is in the oil-producing Tabasco, his home state, where he is likely to make an announcement of some kind pertaining to state oil company Pemex. However, AMLO’s remarks made yesterday, 16 March, about mining concessions and the future of the electricity sector are already damaging enough for business confidence.

Electricity reform

AMLO yesterday said quite categorically that if judges and/or the Supreme Court (SCJN) rule that his Electricity Industry Law (LIE) – which has been signed into law but suspended by an injunction – is unconstitutional, he will seek to change the constitution. This follows a thinly veiled campaign to intimidate the judge who granted the injunction. It seems inevitable that the LIE will end up at the SCJN. For the court to rule that the reform is unconstitutional, eight out of 11 votes are required. AMLO should be able to count on three SCJN judges, so the decision is at a knife edge; one judge is due to retire in December but this may be too long for AMLO to wait.

If the SCJN rules against the LIE, then AMLO says he will push for constitutional reform. However, two-thirds majorities in both chambers are needed for this. In the lower house, the governing National Regeneration Movement (Morena) and its allies could theoretically muster the numbers, though one ally, the Green Party (PVEM), does not support the LIE. The situation in the Senate is even more complicated because Morena and allies are short of a two-thirds majority even with the PVEM on board. Note too that – unlike the lower house – there is no Senate election taking place in June, so it will be impossible to change the current balance of power in the upper chamber.

AMLO might not see this as an obstacle. As he himself said yesterday: “we are very persistent.” The way that AMLO could see himself prevailing in the event of SCJN and congressional roadblocks is to hold another public referendum to demonstrate public support for the reversal of energy liberalization, which he could use to pressure the SCJN into a rethink. This would be highly detrimental because it would undermine already-fragile investor confidence in the rule of law and stability of the regulatory framework, while increasing political polarization.

Mining

AMLO singled out two Canadian mining companies in the same press conference. First, AMLO threatened to revoke Americas Gold and Silver Corporation’s licence for its Cosala operations in Sinaloa unless the company accepts a new union representative. Second, AMLO also criticized First Majestic, which has been in a long-running tax dispute with the SAT tax authority; the company filed for arbitration with the World Bank’s International Center for Settlement of Investment Disputes (ICSID) earlier this month. While AMLO had previously pledged not to cancel existing concessions, a freeze on new concessions, combined with yesterday’s remarks, are likely to be met with increasing concern in the sector. A Morena proposal to put lithium development exclusively in state hands is likely to be a test of where mining policy is headed.

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