Tuesday, September 27, 2022
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Darwin does not fit here

I write these lines after concluding a forum organized by the Mexico Institute of the Wilson Center, the Baker Institute and México Evalúa, to talk about the electrical reform. Without going into details, I can say that the reform proposed by the president is made to try to save the state company, not to promote the development of the country in the course of the following decades. The problem is that the reform weakens the market and private investment in the sector, which would leave the country with a company unable to provide what the market has generated: electricity at lower costs and from cleaner sources. These two factors are key to our future, but also to the world we live in right now. If the reform is approved in its terms, we would keep the company alive (because it would not even have the obligation to be profitable), but at the cost of the country’s progress.

That said, I think we should find ways to make the CFE viable. For several reasons. First, to make the country’s energy future politically viable. I don’t think Darwin’s theories should be taken lightly in the Mexican context. In our imaginary, Iberdrola cannot eat the CFE. Because Iberdrola has a bad name (justified or not, I don’t know) and the CFE is linked to our historical construction of sovereignty, even if it is a company that today destroys value.

To my friends generating evidence in this debate, I challenge you to make a convincing argument on the subject, in plain terms. Your technical evidence is precious. In the forum to which I refer, my colleague Ana Lilia Moreno and others presented how energy generation has evolved since the market operates as such. This evolution is precisely what the 2013 reform wanted to achieve. Yes, a reality has developed from a concept, a designed market. It is a beautiful mechanism – I rephrase my colleague – and it is real. But there is an elephant in the room that we must take care of: the CFE, which still has a very important role in the sector, which could be supported.

The electrical reform of 2013 is quite complex. I think it is well conceptualized, from what I hear from my colleagues who know more about it. The transition/implementation of such reform is still ongoing, and we should not rule it out before it is fully established. I think its virtues can still be further enhanced. The most important, I repeat, is that it establishes conditions for private actors to participate in the sector under rules and regulators that seek balance. Private investment is necessary to be able to make the sector grow at the pace of the economy (today stopped, by the way), but also to put forward investments that allow conversion to clean energy. The CFE could not because in the past there was no fiscal space for it, nor does it exist today, unless we are willing to make enormous sacrifices for it.

The credibility provided by even, clear and permanent rules is what can attract investment to the sector and the 2013 reform created them. Investors from different backgrounds invested taking the stability of the rules of the game for granted. Today everything is in the blender of uncertainty. A constitutional reform is proposed that gives extraordinary powers to the CFE in all fields. The CFE replaces the market. And the even court is uneven with a very marked slope.

The survival of the CFE is sought at all costs. But the path sought by the government is very expensive and unfeasible. In fact, I believe that the discussion should not revolve around the electricity sector and its market, but instead focus on the CFE, the productive State company that must be preserved as such, not as a parastatal, and seek the best business plan for it in the following years. What the figure of a productive company seeks is to make it competitive, profitable and capable of generating value. I am sure that if we were to look for the best minds for business, a viability scheme would be found for the CFE. A business plan, a financial plan, robust corporate governance mechanisms, with the best operators. Just writing it I think about who could make up this team. Here may be the knot of our conversation. The CFE acts like an animal that is going to be hunted, that’s why it asks for everything. And what we must give it are the instruments so that it works well, as well as possible, in the new market model in which it operates.

We must redirect our discussion towards these factors: good, unbeatable regulators, and a productive company that is not a drag, but the pivot of the sector. It can. For Darwin to give him his place in the history of evolution.

A short addendum

With the Court’s resolution on the 2021 reform of the Electricity Industry Law, we have settled back into the world of “it is neither good nor bad, but quite the opposite”. Or in the words of the ‘teacher’ Roldán Xopa, the reform is unconstitutional, but the general invalidity is not declared. Thank you ministers (you know who I mean), you did a feat!

The author is the director of México Evalúa.

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