Mexico’s top court hands López Obrador a win on electricity reform

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Mexico’s Supreme Court on Thursday denied a bid to invalidate President Andrés Manuel López Obrador’s electricity market reform in a decision that puts him on a collision course with the US government and creates a headache for the private sector.

The 2021 reform, which has not yet taken effect, proposed to change electricity dispatch rules to favour state-owned utility CFE over private renewables, part of the nationalist president’s attempts to roll back the industry’s opening to private investment.

A majority of justices voted against crucial articles of the law, but fell short of the eight votes required to invalidate them completely, meaning that López Obrador’s law survived the challenge.

The decision lands amid an already fragile business climate. The US and the private sector argue López Obrador’s proposed reforms threaten billions of dollars of investment, violate trade agreements and will lead to dirtier, more expensive power.

“On top of the policy and political uncertainty that is affecting business confidence, this decision adds a component of legal uncertainty that companies will have to deal with,” said Carlos Petersen, senior analyst at Eurasia Group. “That will likely discourage investment.” 

Numerous companies had filed challenges against the law. The supreme court’s decision means their fate will now be decided case by case in lower courts, with each judge free to make their own decisions, lawyers said.

“The door has opened to a situation that could be pretty chaotic,” said José Maria Lujambio, partner at Cacheaux, Cavazos & Newton. “There’s a whole salad bowl of arguments, so collegiate courts and judges can take whatever they want from it.” 

The US government has stepped up pressure on Mexico in recent weeks over the proposed changes. John Kerry, climate envoy, has now visited the country three times in five months, and raised “significant concerns” over the plans last week.

Katherine Tai, the US trade representative, in a letter warned Mexico that $10bn in US investment was at risk.

“I will be considering all available options under the [United States-Mexico-Canada Agreement] to address these concerns,” the letter read, which was first published by Reforma newspaper.

Mexico’s energy markets were opened up to more private investment under the previous administration. López Obrador has been a fierce critic of the reforms, arguing that they were too favourable to private companies and hobbled state ones.

The country’s lower house will next week discuss and vote on a related constitutional energy reform proposed by López Obrador after lower courts blocked the 2021 law. The constitutional changes also include nationalising lithium and guaranteeing state-owned CFE 54 per cent of the market.

Opposition parties, whose votes are needed to pass it, have said they will not back it.

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