Mexico Energy Monitor
October 26, 2023
Federal revenue bill approved, integrating key Pemex and energy sector supports
- Mexico’s senate has until October 31 to negotiate and approve any changes to the 2024 appropriations bill passed last week in Congress’ lower house. The lower house bill, as approved, strayed little from last month’s original finance ministry proposal – designed to raise federal income at 9.066 trillion pesos (US$496.5 billion) next year. The revenue bill is part of a last-year-in-office push to support state-run energy concerns for Mexican President Andrés Manuel López Obrador (AMLO).
- Lower-house representatives, with a vote last Friday, okayed a reduction in the federal tax rate paid by national oil company (NOC) Pemex from 35% to 30%. With this, Pemex’s tax rate is more than halved from the 65% rate (known as the DUC) on the books when AMLO took office in 2018. The lower rate is projected to provide Pemex with an additional 145 billion pesos next year.
- The lower house also approved a measure exempting public power company CFE from paying taxes on sales made among its various subsidiaries, and it raised Mexico’s debt ceiling by 1.9 trillion pesos.
- Considered the most indebted major oil and gas company in the world, Pemex has barely moved the needle over the last years to reduce its overall debt, with the company owing around US$110.5 billion and major debt payments coming next year. In addition to the reduced tax rates, the finance ministry’s 2024 proposed budget also includes the federal government helping to cover the US$13.8 billion in projected amortization payments coming for next year. The spending bill will be decided in both houses no later than mid-December; however, Morena’s support with allies in both chambers should guarantee some expedition in processing the agreement. The additional burden will mean deficit spending that has yet to be seen under López Obrador – who despite being considered a left-wing populist has been proven as a fierce opponent to debt and unbalanced budgets, but upcoming elections have apparently led to a change in thinking.
- AMLO is moving to cement his top-of-agenda efforts to support Pemex and counter the designs of the 2014 energy sector structural reforms passed in the previous administration to create a market-driven model for power and hydrocarbons, and this goes beyond the NOC. The administration proposal sees the energy ministry receiving an increase of 270%+ year-on-year to 193.18 billion pesos (US$10.6 billion) related to costs associated with the Dos Bocas refinery.
Iberdrola México commits to new investment in Mexico, turning the page on past friction
- Katya Somohano, head of planning and sustainability for Iberdrola México, has confirmed plans for reinvesting the income obtained from the sale of 13 plants to the Mexican government earlier this year in new projects here, speaking at a recent industry event. The sales, amounting to around US$6 billion came after years of rocky interactions between Iberdrola and the López Obrador government.
- The sale of the 13 plants represented about 86% of Iberdrola México’s fixed assets in Mexico, and Somohano’s re-commitment could reflect an end to the adversarial or litigious nature of the company’s interactions with the government promoted in national media in recent years.
- “Each and every peso and dollar received from this operation, Iberdrola is committed to reinvesting them in Mexico in renewable energy,” Somohano said at the XIII Joint Congress of Energy Associations, as reported by energy news outlet Energía a Debate.
- While holding off on stating specific locations or projects, Somohano added, the investments “will depend a lot on where there is a need for investment and where the permits are granted.”
- “To expand its investment in renewables, Iberdrola will have had to reach an agreement with the government to operate, as is the case with other companies that, during the last two years, have led private investment,” Grunstein told Miranda Intelligence.
Grunstein, one of Mexico’s most experienced energy, infrastructure and regulatory lawyer, chief energy counsel at Brilliant Energy Consulting and a non-resident scholar at Rice University’s James Baker III Institute for Public Policy, told MI that Iberdrola’s new posture of cooperation and restoration of investment in Mexico is in line with the most important energy deals that have emerged under the AMLO administration.
CRE unveils legal action against 11 firms, permits at stake
- Mexican energy sector regulator CRE confirmed Monday the start of administrative procedures to sanction 10 hydrocarbon firms and one electric power company that could result in the suspension of permits.
- The move was unanimously approved by the regulator’s six commissioners during an extraordinary session Monday. However, details on the permit holders’ names or their alleged violations were not disclosed.
- In 2018, CRE sanctioned 129 permit holders in the oil and gas sectors with 112 million pesos (US$6.17 million). In May 2021, it revoked 125 oil-related permits due to inactivity. And in July 2023, it said it will sanction 37 companies in the hydrocarbons segment and begin proceedings against another one.
CRE sees 1.567 billion pesos loss in 3Q22
- State-owned utility CFE announced on Tuesday a third-quarter 2023 revenue of 502.45 billion pesos, up 6.8% year-on-year. This marked an 11.2% jump annually in energy sales and 7.185GWh higher demand. Nevertheless, the company also reported a net income loss of 1.567 billion pesos for the same period.
- The company added in its announcement that the loss was reduced thanks to an 11.2% improvement in sales and lower cost of sales in the third quarter.
- “This important dynamic of electricity sales largely responds to the phenomenon of nearshoring,” added CFE in a statement.
EYES ON ENERGY
Mexican private solar power association Asolmex has reported additional gains in the expansion of the segment with large-scale solar capacity reaching 7.544GW nationwide and distributed solar generation (DG) hitting 2.935GW, both by the end of June 2023, for a combined capacity of 10.479GW.The association framed the new data within Mexico’s regulatory framework, a two-tier structure with the lightly regulated sub-500kW DG scheme proving highly successful. DG could see continued expansion in coming years, favored by smaller municipal and state projects and small to mid-sized businesses.
The Asolmex report also notes that the northwestern state of Sonora (just south of Arizona) has the highest concentration of solar power development. The state is almost 18% solar powered with 1.357GW capacity in 15 plants. Sonora is also home to the federal government’s ambitious plan to build the massive Puerto Peñasco solar plant – eventually set to generate 1GW in power – largely to power extraction and refinement of lithium and feeding into key renewable battery supply chains and electric vehicle manufacturing projects lining up along the US-Mexico border.
