Mexican industry prepares lawsuits on power reform

Companies in an array of sectors from manufacturing to convenience stores plan to pursue legal action against the Mexican government if congress approves a proposed power sector reform bill.

More than 500 domestic and foreign companies are planning to file amparos, or constitutional appeals, against the proposed reform, said Jorge Arrambide, a Mexican attorney representing companies preparing legal action.

"Without a doubt, we are expecting a tsunami of amparos," said Adrian Sada, chief executive of Mexican glass producer Vitro and head of industrial chamber Caintra. "[The reform] violates many rights for practically all the small, medium and large industrial companies."

The bill, approved by the lower house of congress and under debate in the upper house today, seeks to prioritize power dispatch generated by state power company CFE, revoke self-supply permits and review all long-term power purchase agreements with independent power producers.

The reform would raise the cost of electricity for manufacturers and would put at risk arrangements to buy electric power directly from generators at lower prices, said Sada, whose company is the largest glass producer in Mexico.

"Many investors came to produce or invest in our country, and many Mexican companies invested in electric power generation, with certain rules of the game that are now being threatened," he said.

Companies are already preparing injunctions that allege the proposed law violates the Mexican constitution in areas such as free competition and environmental protection, said Arrambide, an attorney at law firm Santos Elizondo.

Some appeals also allege violations to international agreements such as the US-Mexico-Canada free trade agreement (USMCA), he said.

Foreign firms may also pursue international arbitrage under USMCA, but will begin with appeals in Mexico because they are quicker and can suspend immediate implications for plaintiffs, Arrambide and Caintra said.

Companies that file successful injunctions will not have to abide by the reform, but such actions will not undo the law or suspend it for other companies, he said.

Sada said the appeals have a "very high probability of success" because judges have ruled in favor of similar legal actions in the past. Arrambide also said he expected judges to rule in favor of the injunctions.

"The federal government has not considered the magnitude of the impact that this law will have," said Guillermo Dillon, director general of Caintra. "When [the law] moves forward, the government will be overwhelmed by the repercussions."

By Jens Erik Gould