Mexican state electric firm aims to rework private contracts

MEXICO CITY — Mexico's state-run electric company is looking to renegotiate generous natural gas contracts it has with private sector firms that stipulate payments even when gas isn't being delivered.

Federal Electricity Commission director Manuel Bartlett said Monday the company runs the risk of bankruptcy if it doesn't reach new terms with the companies. He said that since 2015, it has paid private sector companies 62 billion pesos ($3.2 billion) under contracts for gas delivered via pipeline to generate electricity, even when the gas isn't flowing. Several projects have been blocked by community protesters.

President Andres Manuel Lopez Obrador expressed optimism that the contracts could be revised voluntarily, while lambasting their existence in the first place. Several of the companies involved have ties with former government officials in Mexico.

"They have done juicy business under the protection of public power; they have inked unfair contracts, contracts that favor individuals," Lopez Obrador said.

Lopez Obrador compared the private sector investment to a "conquest," a loaded word in Latin America that alludes to the Spanish conquistadors who laid stake to the region.

"Mexico is no longer a land of conquest, this is over," he said, adding later that the private sector incursions into the energy sector were facilitated by influence peddling and government compliance. "There were no borders," he said.

Bartlett listed three companies that he said enjoy payments from the company, known as the CFE, despite stalled gas lines. One of those companies, IEnova, said in a statement: "All of IEnova's natural gas transport pipelines with CFE were awarded through open, transparent, international public bid processes, according to international industry standards."

The company, a unit of San Diego-based Sempra Energy, said that an IEnova pipeline that began serving CFE in May 2017 went offline the following August due to "acts of sabotage" that were reported to local and federal officials.

IEnova also defended its chairman, Carlos Ruiz Sacristan, after Bartlett named him as one of several former government officials who benefited from private deals with CFE. Bartlett and Lopez Obrador blame past administrations for letting CFE infrastructure fall into disrepair while outsourcing services.

Ruiz Sacristan served as communications and transport minister for six years through 2000, under President Ernesto Zedillo.

"In his professional career in both the public and private sectors, he has conducted himself ethically, honestly, and transparently," IEnova said of Ruiz Sacristan.

Another of the companies, TransCanada, said in a statement that its contracts were obtained through a transparent and open public bidding process.

"Since the completion of our projects is clearly of mutual interest for CFE and TransCanada, we welcome the opportunity to work with the government and with the CFE to find solutions to the issues preventing completion of these projects," the statement said.

The third company, Mexico's Carso Energy, also defended its contract obtained through public bidding. It said in a statement that two pipelines it built in the U.S. are already operating and that it was only the northern Mexico pipeline that had been held up by disputes with landowners. The delays were making the project more costly, it said.

During an interview with Mexican news channel Milenio, former President Felipe Calderon defended the contracts, calling them common in the energy industry. "Otherwise very complicated projects couldn't be financed," he said.

Such understandings protect the contractor in the case of community opposition or decisions on behalf of the client to, say, produce electricity by burning coal rather than natural gas.

Luis Tellez, who was energy minister under Zedillo and communications and transport minister under Calderon, also issued a statement after Bartlett questioned his work in the energy sector, saying that he complied with Mexican law stating that public servants must refrain from working in a sector they regulated while in government for at least a year after leaving public sector positions.

"Currently, I have responsibilities with companies in the sector, nearly 20 years after having been energy minister," Tellez said, adding that he has always been "conscious of the need to avoid conflicts of interest."

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