February 12, 2021

Looking Forward Toward a New Bilateral Relationship on Energy Matters

By José María Lujambio

On January 18, 2021, a letter sent by the United States Secretaries of State, Energy, and Commerce to their counterparts in the Mexican government was made public. The letter, dated January 11, contains the clearest and most direct official message in defense of U.S. interests in the Mexican energy sector since President López Obrador ordered a freeze on the implementation of the country’s constitutional and legal energy framework and dictated a series of regulatory and administrative measures tending to inhibit competition from private, foreign and national investment with Mexican state companies, Petróleos Mexicanos (“Pemex”) and the Federal Electricity Commission (“CFE”).

The main concerns expressed in the letter are the improper regulatory treatment in favor of Pemex and CFE, as well as the effects on investments of hundreds of millions of dollars made with financing from certain U.S. development banks, which has called into question Mexico’s compliance with its commitments under the USMCA. It seems the two drops that caused the glass to overflow were, on the one hand rules which since last December have made it difficult to obtain import and export permits for petroleum products and natural gas, and on the other, the long and unjustified “closings” of government energy agencies such as the Ministry of Energy (“SENER”) and the Energy Regulatory Commission (“CRE”). 

The letter can now be added to the separate letters that the Canadian and European Union diplomats presented in the middle of last year protesting the suspension of tests in wind and solar power plants ordered by the National Center for Energy Control (“CENACE”), and by SENER’s electricity reliability policy.

The letter also complements separate letters sent by Canadian and European Union diplomats in the middle of last year, protesting the suspension of tests in wind and solar power plants ordered by the National Center for Energy Control (“CENACE”), and by SENER’s electricity reliability policy. 

Until now, the only known response from the Mexican government was issued by its Secretary of Energy, who pointed out via Twitter that the relationship with the United States regarding the USMCA and energy matters, is one of respect for the constitutional rules of each country.  One would have expected a more concrete argument making reference specifically to Chapter 8 of the USMCA, which reiterates Mexican constitutional rules, while also acknowledging the contents of other chapters of the treaty that establish obligations on Mexico as to regulatory impartiality towards its own companies, and protection of investments, among others. The reality is that, in recent months, the Mexican Federal Judiciary has suspended, and in some cases, declared unconstitutional, several measures promoted by the Mexican Administration in the energy sector. 

Outgoing U.S. officials will not be around to pay for any of the political repercussions for the letter they sent. However, they have set the table for the Biden administration to continue the conversation. One can expect that the new Biden administration will resume the institutional diplomatic path that was abandoned over the last four years for favoring relationships based on personal affinity; that is, in itself, good news for both countries. It would also be expected that the ambitious energy transition agenda announced following the U.S. presidential campaign will have an impact at least on North American production chains and, in the best of cases, will make the Mexican Executive reconsider his country’s fulfillment of its international obligations. Of course, the emphasis on a “green recovery” should not discourage U.S. companies in the hydrocarbons subsector from also seeking support from their representatives in government to protect the investments they have already made. Hopefully, relevant discussions are resumed, and the U.S. and Mexico are able to align their priorities in a collaborative, dynamic manner that benefits both countries.