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Energy sector eyes Mexico state election

02 Jun 2017 18:59 (+01:00 GMT)
Energy sector eyes Mexico state election

Mexico City, 2 June (Argus) — Mexico's upcoming gubernatorial election in a key state is being watched as a possible indicator of a more nationalistic turn as the county enters a critical point in remaking its energy sector.

The governor's election set for 4 June in the central state of Mexico, which rings most of the capital city, pits the governing party which has ushered through a historic energy reform against the party of a presidential candidate who has said he would support rolling back the reform.

Delfina Gomez, candidate for governor of the state of Mexico for the leftist National Regeneration movement (Morena), has appeared in polls to be practically tied with Alfredo del Mazo, candidate for the governing, more centrist, Institutional Revolutionary Party (PRI). Mexico state has long been a PRI stronghold. A recent survey indicated that Gomez could pull ahead, although political observers and people from her own party interviewed by Argus believe competing parties on the left could cost her the election.

But the party's national leader, Andres Manuel Lopez Obrador, or AMLO, has been leading opinion polls for the 2018 presidential election for months.

In the energy sector, Lopez Obrador's populist, Mexico-first agenda could be a radical departure from the current administration's passage of a sweeping energy reform that ended decades of monopoly held by state-run Pemex and power utility CFE.

This comes as Mexico is almost midway through a year in which it plans to completely lift gasoline and diesel price caps and hold open seasons for portions of the country's fuel transportation and storage infrastructure throughout the country.

The presidential hopeful, a fierce opponent of the energy reform, says he will hold a referendum to potentially revoke the changes.

"He would organize a referendum to know people's opinion and from there launch the required constitutional reforms," said Claudia Sheinbaum, Lopez Obrador's pick for secretary for the environment in his bid for the 2012 presidential election.

Sheinbaum said contracts that dozens of domestic and foreign companies have already signed under the reform could, in the case of a new referendum, be renegotiated.

"If there were contracts that are already signed, we would analyze how, in the judicial framework, to negotiate them," Sheinbaum told Argus.

But others say AMLO could soften his stance if elected.

"Lopez Obrador has two facets," says Dwight Dyer, a political and energy analyst, and former member of Mexico's intelligence agency. "As a leader, he tends to moderate a lot, he is not as populist."

As mayor of Mexico City from 2000 to 2005, Dyer says that Lopez Obrador often promoted projects that benefited the upper middle-class.

Another adviser to the candidate said that energy policy proposals are still being crafted.

"It is a debate that has not been solved," tempered Jorge Eduardo Navarrete, a close adviser who focuses on international affairs. "Which aspects of the recent energy reform would be brought forward and given emphasis, and which would we try to modulate or not promote in such an open way."

Energy sovereignty — and more generally speaking, independence towards the neighboring US — is another key pillar of Morena's campaign promises. Lopez Obrador has said he would gradually bring to an end Mexico's crude exports to focus on the domestic production of fuel, which recently reached historic lows.

In the first four months of 2017, Pemex produced an average of 317,900 b/d of gasoline and imported 489,700 b/d, or 60pc of domestic demand.

Pemex exported an average of 1.077mn b/d of crude in the same period, for a total of $5.7bn.

To reverse the trend, Lopez Obrador has proposed to upgrade some of Mexico's six domestic refineries — a project also sought by the current government — as well as build a new refinery.

In 2014, energy secretary Pedro Joaquin Coldwell dismissed the previous government's plan to build a refinery in the state of Hidalgo, confirming a widely held view that it made no commercial sense.

According to Claudia Sheinbaum, a team is already looking into potential financial options for the construction of the refinery. Another option, Navarrete says, is for Mexico to join the Asian infrastructure investment bank.

In the long term, Morena's position is to move away from fossil fuels altogether.