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Global Energy Giants Breathe Sigh of Relief as Mexico’s Electricity Reform Falls at Final Hurdle

Summary:
Within hours of the Electricity Reform’s failure, Mexico’s President AMLO had shifted his focus to new legislation aimed at nationalizing Mexico’s lithium deposits.  After more than 13 hours of intense debate on Easter Sunday, 275 out of 499 deputies voted in favor of Mexican President Andrés Manuel López Obrador’s long-awaited, highly contentious Electricity Reform bill. Yet the bill still failed to pass. Since it required altering the constitution, it needed a two-thirds majority in Mexico’s Chamber of Deputies. It only managed to secure 55% of the votes. As a result, many of the world’s largest energy companies, in particular the Spanish behemoth Iberdrola, were breathing a sigh of relief on Monday morning. Washington recently claimed that as much as billion of US investments were

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Within hours of the Electricity Reform’s failure, Mexico’s President AMLO had shifted his focus to new legislation aimed at nationalizing Mexico’s lithium deposits. 

After more than 13 hours of intense debate on Easter Sunday, 275 out of 499 deputies voted in favor of Mexican President Andrés Manuel López Obrador’s long-awaited, highly contentious Electricity Reform bill. Yet the bill still failed to pass. Since it required altering the constitution, it needed a two-thirds majority in Mexico’s Chamber of Deputies. It only managed to secure 55% of the votes.

As a result, many of the world’s largest energy companies, in particular the Spanish behemoth Iberdrola, were breathing a sigh of relief on Monday morning. Washington recently claimed that as much as $10 billion of US investments were at risk.

But by Monday evening Lopéz Obrador (otherwise known as AMLO) had pivoted the focus of the debate from his failed energy reform bill to a totally different bill that will no doubt have some of the world’s mining conglomerates in a lather. It is time, he said, for plan B, which essentially involves fast tracking a mining bill aimed at nationalizing Mexico’s deposits of lithium and other “strategic minerals”.

Unlike constitutional reforms that require a two-thirds majority, amendments to the Mining Law only need a simple majority, which the Morena coalition has comfortably. By the end of the day Mexico’s House of Deputies had voted to nationalize the nation’s lithium stores, with 298 votes in favor, 0 against, 197 abstentions and an opposition walkout. The bill now goes to the Senate, where, as the Jacobin’s Kurt Hackbarth put it, “barring an Elon Musk-funded hit squad, it is certain to pass.”

Big Blow to AMLO

The AMLO government’s failure to pass its constitutional-level electricity reform still represents a big blow to AMLO, for whom the reform was one of the key planks of his so-called “fourth transformation” of Mexico. If the bill had passed, it would have awarded the state-owned Federal Electricity Commission (CFE) control over the production of at least 54% of the nation’s energy supply. The CFE would also have become an autonomous legal entity, no longer hamstrung by the “autonomous” subsidiaries and commissions created in recent decades.

The proposed reform would also have curbed the abuses and excesses of energy companies, most of them foreign owned, that have rigged the system to their advantage. On top of that, it would have granted the State sole exploration and mining rights over lithium and other strategic minerals deemed strategic for the nation’s energy transition. As Hackbarth wrote in Jacobin some months ago, by including these provisions in the bill AMLO “elevated the ongoing scuffle between the public and private energy sectors to the level of a historic battle.”

But that battle was to be waged against some of the world’s largest energy companies, many of which had been awarded juicy deals in the energy privatization reforms of AMLO’s predecessor Enrique Peña Nieto. And those companies have virtually unlimited resources at their disposal.

For a start, they can count on the slavish support of Mexico’s three main establishment parties — the Institutional Revolutionary Party (PRI), which ran Mexico for 70 uninterrupted years and which pushed through Peña Nieto’s energy reforms of 2013; the social democratic PRD party, which is largely a spent force in Mexican politics; and the conservative pro-business National Action Party (PAN) which governed Mexico between 2000 and 2012.

The energy giants also have vast lobbying power at their disposal, including the diplomatic weapons wielded by US and European governments. As I recently reported, the United States government has raised the pressure on Mexico in recent weeks by threatening to take legal action against the country if AMLO’s energy reform is passed. During Sunday’s debate Ildefonso Guajardo, the former secretary of economy who helped to write Peña Nieto’s energy reform bill as well as negotiate the terms of the United States-Mexico-Canada Agreement (USMCA), picked up the baton, warning that AMLO’s energy reform would violate the terms of USMCA

There will be two consequences. First, the traditional investor-state disputes. When we change the rules of the game… investors have the right to take us to international court. This without doubt would hit the Mexican people. Millions of dollars are at stake — over $36 billion according to estimates — and that is going to affect the ability of the Mexican government to serve the needs of the most vulnerable classes.

And the second and more important impact is that an affected State will be able to launch an investor state dispute against us, just as we have done against the US over transport issues. That gives the State in question the right to impose customs duties on our exports — on our cars, our electrical appliances, our avocadoes and tomatoes, affecting the well-paid jobs of Mexican women and men.

Spain has also threatened to retaliate against AMLO’s proposed energy reform. Juan Fernández Trigo, the secretary of state for Ibero-America in the government of Pedro Sánchez, warned that Spain will “react very clearly” against the new law. The US government even proposed setting up a team led by US Ambassador to Mexico Salazar that would work with the White House and to help the AMLO Government tweak its reform efforts, which AMLO roundly rejected the next day.

A New Low for Energy Lobbyists

During a recent plenary session of the Chamber of Deputies on AMLO’s electricity bill, an Italian lobbyist by the name of Paolo Salerno was spotted inside the chamber counselling two deputies, Edna Diaz of PRD and Margarita Zavala, a senior member of PAN and the wife of former President Felipe Calderon, who shortly after leaving office in 2012 joined the board of directors of Avangrid, a subsidiary of the Spanish energy giant Iberdrola.

The fact that energy industry lobbyists now feel emboldened enough to peddle their influence inside the chambers of government represents a fresh low for Mexican politics. Salerno is a coordinator of the Italian Chamber of Commerce’s Energy Committee and allegedly an adviser to Italian energy giant Enel Group, which the CFE has accused of repeatedly flouting Mexico’s energy rules.

Also, in a recent article for Jacobin Kurt Hackbarth lays out how US think tanks — in particular the Houston-based Baker Institute — have influenced Mexico’s debate over AMLO’s energy reforms:

The case of the Baker Institute merits special attention, as it is emblematic of how these cross-border interests converge and operate. Founded in 1993 and annexed to Rice University in Houston, “the energy capital of the United States,” the institute is named after former secretary of state James Baker and has, in its own words, “established itself as one of the premier nonpartisan public policy think tanks in the country.” To perform its activities, the institute has at its disposal an $11.4 million annual operating budget, backed by an endowment worth some $160 million — and helped along by several million dollars’ worth of Koch Foundation money.

Another important supporter of the institute is a very well-known name in Mexico: Claudio X. González Laporte. A life member of the institute’s board of advisors, González Laporte, the CEO of Kimberly Clark Mexico, is one of the select names to appear in the top-level “Statesman Circle” of donors. González also happens to be a sworn enemy of AMLO, one of his most vicious antagonists in his first two presidential campaigns, while his son, Claudio X. González Guajardo is the power behind the throne of the opposition coalition Va por México, which, having failed to wrest back control of Congress in 2021, is currently in the process of attempting to stay together to fight the presidential election of 2024.

The Mexican investigative newspaper Contralinea reported last year that the organization founded by Claudio X González “Mexicans Against Corruption and Impunity” (MCCI) has received funding from both US Agency for International Development (USAID) and the National Endowment for Democracy (NED), both of which have a history of funding opposition groups and coups in Latin America and beyond.

In response to the revelation, Mexico dispatched a diplomatic note to the US asking it to clarify the matter. AMLO himself described the US government’s funding of MCCI as a form of golpismo, or coup promotion, and likened it to the participation of US ambassador Henry Wilson in the overthrow of President Francisco Madero during the Mexican Revolution. “It’s an act of interventionism that violates our sovereignty … Our Constitution forbids it. You can’t receive money from another country for political ends.”

Act of Betrayal

On Monday, AMLO described the Chamber of Deputies’ rejection of his energy reform as an “act of betrayal of Mexico… by a group of legislators, who instead of defending what belongs to the public became defenders of foreign companies that are dedicated to stealing.” At his Morning morning press conference the President warned the battle “is far from over, it is just beginning. We were preparing for betrayal; a strategy was defined from the very beginning to rescue (Mexico’s) electricity and oil industry.”

The government’s focus is now on protecting Mexico’s lithium stores, which include the world’s largest lithium mine, the Sonora lithium project, with proven and probable reserves of 243.8Mt. The main goal of the new mining bill, which is almost certain to be approved by Mexico’s Senate, is to ensure that lithium exploration, exploitation and use will be exclusively reserved for the Mexican state under a federal authority.

“We are going to protect Mexico’s lithium, the lithium of our generation and future generations, our children and grandchildren,” AMLO said.

As many of AMLO’s opponents have been desperate to point out in the past 24 hours, all of Mexico’s lithium stores already belong to the Mexican State — at least in theory. Article 27 of Mexico’s constitution holds that “the direct ownership of all natural resources of the continental shelf and the submarine shelf of the islands” is vested in the nation. But in practice, just about every Mexican government since NAFTA has awarded exceptionally generous concessions to foreign mining companies, many from Canada, that have left behind them a vast trail of environmental devastation, human rights violations (including union busting) and corrupt practices.

Through his mining reform, AMLO appears to want to change this dynamic, to ensure the country’s lithium reserves are extracted in the future for the benefit of the Mexican people. In so doing he risks not only further ratchetting tensions with Mexico’s largest trading partner, the United States, but also displeasing the governments of both Canada and the world’s second largest economy, China.

China is home to the world’s largest lithium miner, Ganfeng Lithium. Ganfeng recently closed a deal to supply Tesla with lithium batteries. It also recently acquired UK-based Bacanora, with whom it owns a stake in the Sonora lithium project, giving Ganfeng complete control over Mexico’s largest lithium deposit.

The deal received the blessing of Mexico’s Federal Economic Competition (Cofece), much to AMLO’s apparent annoyance. During his February 1 morning press conference, AMLO told reporters that Mexico’s large lithium deposits were not there to be exploited by Chinese, Russian or American companies. The day after, he announced his government would set up a state-owned company to mine and refine the silvery-white metal.

Big questions remain. Firstly, will a state-owned company have the necessary resources and expertise to effectively and efficiently extract lithium in Sonora and elsewhere? This is particularly pertinent given most of Mexico’s lithium reserves are found in clay deposits, which are particularly expensive and technically complicated to mine.

AMLO maintains that all of the eight lithium mining concessions granted by previous governments, four of which are held by Bacanora (now owned by Ganfeng), will be respected. But the licensees must prove to the Federal Electricity Commission and the Ministry of Energy that the concessions are actually in use rather than, as if often the case, being exploited for speculative purposes. At least on the surface, this appears to be the case with Bacanora’s concessions in Sonora.

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