US lawmakers counter Mexican regulatory bias

Preferential treatment for Mexico's state-owned companies threatens US energy investment and may violate the two countries' free trade agreement, Texas' two senators and 41 other lawmakers told the White House.

Mexico's president in September called on the country's energy regulatory agencies to prioritize the work of state-owned oil company Pemex and power company CFE, although the country's 2014 energy reform aimed to level the playing field for other companies after decades of government monopolies. Yet president Andres Manuel Lopez Obrador has long opposed the energy reform passed by his predecessor, and his Morena party has proposed rolling back the constitutionally enshrined changes that allowed for private investment in the sector.

The bipartisan group of US lawmakers complained of Mexico "delaying or cancelling outright permits for US energy companies," in the letter yesterday addressed to US president Donald Trump. It cited anecdotal experiences and echoed complaints from market participants, as well as a letter the American Petroleum Institute sent in June.

Evidence that Mexico's government is providing preferential regulatory treatment to Pemex and CFE includes a leaked memo from Lopez Obrador directing regulators to "use all available resources within the regulatory framework" to protect the state companies, the lawmakers said.

"These efforts violate and contradict the spirit, if not the letter," of the US Mexico Canada (USMCA) free trade agreement, the lawmakers said. "Therefore, we are deeply concerned that these actions demonstrate a pattern of obstruction."

Mexico is the largest single export market for US refined products as well as natural gas exports.

Lawmakers who signed the letter include senators John Cornyn (R) and Ted Cruz (R), and Democratic representatives Henry Cuellar and Lizzie Fletcher, all of Texas — Mexico's main trading partner among the US states. Cruz especially had often sided on key issues with Trump, who faces an election against Democratic presidential candidate Joe Biden on 3 November.

Lopez's Morena party faces mid-term elections next June, and is aiming to win the two-third majority of congress which would ease passage of constitutional changes such as reversing the energy reform. Constitutional changes also require a simple majority vote in Mexico's state legislatures.

The Mexican president began reversing some implementation of the energy reform immediately after taking office, including cancelling planned rounds of upstream exploration and production rights. The reform did not bring lower energy prices and investment has fallen short of promises, Lopez Obrador has said.

But investors — both foreign and domestic — complain that the regulatory uncertainty of the Lopez Obrador presidency has undermined their efforts.

"US companies have invested billions of dollars in midstream and retail infrastructure in Mexico to the benefit of both countries," said Chet Thompson, president of the American Fuel and Petrochemical Manufacturers trade group in response to the letter. "However, this good progress is now in jeopardy based on the Mexican government's preferential treatment of Pemex and their actions to delay or even cancel permits for US energy companies."

Mexico's courts have provided a counterweight recently against some of the government's proposals to favor state companies, particularly in the power sector. The supreme court suspended a policy that favored state-owned generation, although the state power utility has also redrawn grid dispatch rules that would favor state-owned hydroelectric generation in a separate effort.

By Carla Bass