By Tom Kleckner

MEXICO CITY — Mexican President-elect Andres Manuel Lopez Obrador has been called a populist, a nationalist, a socialist and, because of his anti-establishment reputation, a mirror image of Donald Trump. That could be bad news for Mexico’s fledgling competitive electric market.

Lopez Obrador has said he wants to evaluate the energy liberalization of 2013-14, which opened the state-run petroleum and electric industries to foreign investment. Although the president-elect’s focus has been on the country’s oil resources, that doesn’t make those involved in the electric reforms feel much better.

“It’s super uncertain,” said Jose Maria Lujambio Irazabal, a legal counsel deeply involved in the energy reforms, now engaged in private practice in Texas. Offering a more optimistic note, he added, “There’s no immediate interest in changing anything. It’s not politically attractive.”

“Everybody has said they want money to come to Mexico,” said Duncan Wood, director of the Wilson Center’s Mexico Institute during a Gulf Coast Power Association breakfast last week. “It’s not a nationalist idea to say foreign money is bad, except in the energy sector, and oil and gas in particular.”

David Shields, who runs a Spanish-language website devoted to analysis and opinions on energy issues, said the opposition to foreign investment stems from U.S. companies’ expropriation of natural resources south of the border during the early 1900s. “Current leftist thought is that foreigners shouldn’t have [the oil],” Shields said.

Lopez Obrador, more popularly known as AMLO, campaigned on promises to reduce economic inequality, combat corruption and reduce narco violence. Wood said his message was consistent with his previous two runs for the presidency in 2006 and 2012. But this time, AMLO’s message resonated with Mexicans resentful of the elites and tired of the status quo.

He won almost 54% of the vote in a field with four other contenders.

“You have to go to an Andres Manuel rally just to experience it,” said Wood, who was among the 80,000 that filled the Zocalo, Mexico City’s main square, for the president-elect’s victory speech July 1. “They’re emotionally exhausting. You get there, and everyone is screaming, ‘Presidente! Presidente!’”

AMLO’s National Regeneration Movement party (MORENA) formally created only four years ago, also won majorities in both houses of the national legislature and took five of the nine governorships that were up for grabs. With the party near a super-majority, which it could gain in the 2021 midterms, locals are already talking about constitutional changes that could lead to a second term for Lopez Obrador and the possible extinction of the PRI and PAN parties that have ruled Mexico for 89 years.

“Andres Manuel studies history,” Wood said. “He wants to be a great presidente. He wants a legacy. He wants to go down in history and be remembered by the history books as someone who improved the country.”

Taking on Pemex

Wood said AMLO’s objective is to have MORENA become a “truly hegemonic” party that dominates Mexican politics for years to come. That means taking on a pair of institutions that have come to symbolize Mexican corruption, the government and Pemex, the national petroleum monopoly.

AMLO’s administration, which won’t take office until Dec. 1, has said it wants to review each of the 107 energy-related contracts the government has signed with ExxonMobil, Chevron and more than 70 other foreign companies to seek out corruption. Suspicious of the private-equity interests backing some of the contracts, the incoming government also wants to suspend new oil and power auctions during the transition, an action Wood says President Enrique Pena Nieto is likely to agree to as a sign of goodwill.

“It’s not the contract; it’s how [the companies] got the contract,” Wood said. “In that way, [the government] could choose one company and make them the scapegoat. Then [it] can tell the public, ‘We fixed it.’

“Will that freak out investors? Yes, but it won’t be a disaster,” he said. “Those 107 contracts are already starting to pay off. The rig count has gone up for the first time in years. Andres Manuel will start receiving the benefits of energy reform. Revenues are coming into the coffers. He doesn’t have any interest in canceling those contracts. When they say there won’t be any more bidding, that might be the truth.”

Power Contracts More Transparent

While most of the contracts are oil and gas exploration and production deals, they also include clean-energy certificates and energy and capacity contracts. Power industry insiders say their contracts are more transparent than those in the oil and gas sector, and they remain confident they will remain a lower priority for AMLO. They note that the subsidized electric industry provides cheap power, while Pemex is seen as extracting value from the nation’s resources.

“In our view, the electric industry is in a less vulnerable position than the oil and gas industry, but we’ll be monitoring it very closely,” said Laurie Fitzmaurice, vice president of development for EDF Energy’s Mexico business.

EDF has a sizeable presence in Mexico, with 391 MW of wind generation operating, 90 MW of solar under construction and more than 1 GW of wind and solar in development. Fitzmaurice said EDF has been in Mexico for more than 15 years and intends to remain “for the long term.”

“Signals sent by the incoming administration and the support of industrials and the local business sector have been positive,” she said, noting that the industry is in the middle of another power auction, with economic bids due in November and contracts to be awarded in February.

Peter Nance, managing director of Que Advisors, is among those taking a wait-and-see attitude. He expects the oil-and-gas sector to undergo the new administration’s initial scrutiny. “The [power] auctions have been successful in attracting capital,” he said.

“Our job for the next six years is to explain the importance of the power reforms,” said Ruth Guevara, a founding partner with Zumma, an energy consulting firm.

Nance and others point out that foreign investment will be important if AMLO wants to balance the budget and provide subsidies and other income support for low-income farm workers.

“They will need the money for the federal budget,” Lujambio Irazabal said. “The key is low [electric] prices for the end users. We’ve always had subsidies, and we’ll always have subsidies.”

“Electricity is less controversial in the public eye than oil contracts,” Wood said. “There has to be some kind of gift to the Mexican electorate, and that will be continuation of subsidies for small Mexican consumers.”

The government has long subsidized electric rates for its smallest consumers on the backs of large users, and Wood said AMLO has had a long history of fighting for lower prices. In the mid-90s, AMLO organized protests against excessive fees being charged to consumers in his home state of Tabasco, protests that continue today.

“You will see that powerful, centralized government is going to be crucial to managing the energy sector,” Wood said.

He said whomever is chosen for energy secretary will be secondary to the president-elect. However, AMLO’s early choice for the position, Pemex veteran Norma Rocio Nahle Garcia, is not the open-market economist Wood was hoping for. “Her vision is definitely of the old style of Mexican politics,” he said.

And change may not be what Mexico’s economy, the world’s 13th largest, necessarily needs at this point, Wood said.

“Cheap power is fundamental to Mexico’s economic competitiveness,” Wood said. “Andres Manuel knows he needs one thing. He has political dominance, but he needs economic stability. He’s not going to change very much.”