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(Bloomberg) — Companies in Mexico’s power sector are sounding the alarm after the government published a draft proposal that would force them to sell electricity to state-run Comision Federal de Electricidad and potentially open the door for a government takeover of some power plants.
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The draft, published Dec. 5 as part of a public comment process prior to being formalized in the official gazette, would modify an existing regulation for independent power producers.
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Under the existing rules, generators could sell electricity to CFE through long-term contracts with the right to migrate to the wholesale market once contracts ended. The new version of the rules would force independent power producers to sell only to CFE for five years.
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The current arrangement also gave the generators ownership of their assets. The modified version would give CFE the option to acquire the assets at no cost. The only alternative for power producers to avoid the catchall rules would be to negotiate new permits directly with the government.
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Mexico’s energy ministry declined to comment.
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Private company lobby group Mexican Association of Energy said in a letter linked in a public comment that while the old rules recognized private ownership of the power plants without any obligation to transfer assets, the new regulations “could be configured as an indirect expropriation.”
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Independent power producers make up about one-fifth of Mexico’s operating generation capacity.
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The new rules follow a constitutional reform passed in Oct. 2024 that overturned regulations for the power sector. The additional guidelines published in December are part of a series of steps that detail the practical application of portions of the bill.
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Analysts caution that the proposal as it stands risks affecting foreign companies, including power producers in Mexico with ties to US and Canada that could claim their rights as part of the United States-Mexico-Canada trade agreement are violated. Companies with permits to operate as independent power producers include AES Energy, Naturgy Energy Group, Mitsubishi Power, Acciona SA and Saavi Energia, among others.
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“Mexico is facing pitfalls as it tries to strike a balance between state control and investor rights, especially regarding legacy assets in the energy sector,” said Pablo Zarate, senior managing director at FTI Consulting. “These draft regulations show that tension. They also ignite concerns that, if not ironed out, could spark dispute settlement mechanisms under current USMCA rules and other investment treaties.”
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