The Mexican Electricity Sector: Economic, Legal and Political Issues

Transcription

1 The Mexican Electricity Sector: Economic, Legal and Political Issues Victor G. Carreon-Rodriguez Centro de Investigacion y Docencia Economicas Guillermo Govela-Martínez Secretaría de Energía, MEXICO Stanford University February 19-20,

2 Case Study: Mexico Origins of the System Evolution from 1920 to 1980 Consolidation and Challenges: 1980 to 1990 The system from 1990 to 2000 Remaining challenges in

3 Origins of the System 1879: The first thermoelectric plant Mining and Textile industries Excess production: residential and commercial users => Vertically integrated privately owned monopolies Regionally distributed More industrialized and populated cities This created a very profitable business 3

4 Creation of Comision Federal de Electricidad (CFE) In 1939: CFE s expanding role 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% CFE Chapala Impulsora Mexicana 4

5 Evolution from 1920 to : Luz y Fuerza del Centro (LFC) => 1960: Nationalization of the electricity industry The Mexican electricity supply industry transformed into a vertically integrated state owned monopoly It was a natural monopoly formed by two state enterprises: CFE and LFC => Energy Law (LSPEE) is established in

6 Consolidation and Challenges: 1980 to 1990 Consolidation of the System under the following characteristics Governance: Monopoly formed by CFE and LFC Directors appointed by the Mexican President Objective was to provide electricity to all Mexicans regardless of costs Tariffs were set by the budget minister Subsidy policy for all users 6

7 Consolidation and Challenges: 1980 to 1990 Finance: Federal investment CFE s resources Local debt Foreign debt Subsidies by government 7

8 Consolidation and Challenges: 1980 to

9 The system from 1990 to 2000 Motivations for reform Economic efficiency: Inefficient system because Main decision are taken outside the firms Prices are set by budget minister Energy Losses are huge Number of employees is growing over time Obsolescence of installed capacity and transmission Exponential Growth in demand A crisis in supply A continuously growing need for new capacity 9

10 The system from 1990 to : Reforms to the LSPEE Objectives: Provision of a better public service Allow private investment to reduce public investment and increase productivity Public Service activities exclude: Self-generation, Cogeneration Small scale production IPP Exportation and importation 10

11 Other Important events in the 1990s Reforms in infrastructure industries Ports Telecommunications Gas 1995: CRE (Energy Regulatory Commission) 1997: PRI loss control over Congress 1999: Proposal by President Zedillo 2000: PRI loss election for President 11

12 Mexico s energy sector challenges: I. Guarantee energy supply to a country with one of the world s highest growth rates in demand. II. III. IV. Meet investment requirements to adequately expand energy infrastructure. Carry out a structural reform to introduce higher efficiency and quality of service, and to promote private participation. Strengthen the regulatory and institutional framework to encourage the expansion of energy infrastructure. V. Transform Pemex and CFE into world-class companies. 12

13 The Challenge of Meeting Electricity Demand Demand for electric power will grow at an annual rate of 5.6%, reaching 290 TWH in Power sales for industrial use will increase in 6.2% per year for the period. The Northeast and the Northwest region will experience the greatest rate of growth for the period, 6.5% and 5.6% respectively. National Power Demand (TWH) % Cogeneration and Self-supplied Total Sales Fuente: Comisión Federal de Electricdad 13

14 Expected Investments in the Power Sector: Growing Role for IPPs Close to 60 billion dollars will be required during the next 10 years in the power sector. Only 47% of the investment is expected to come from the Federal Budget ,195 IPP and FP Federal Budget 51,468 39% 48,946 41% (Billion pesos of 2002) 54,244 53,064 49% 48% 61,723 53% 66,401 66,352 59% 58.0% 71,191 59% 74,334 58% % % 59% 51% 52% 47% 41% 42% 41% 42% 39% Source: Energy Ministry with CFE and LyFC data. 14

15 CFE s Financial Constraints CFE s total debt amounts to 130% of sales. Labor liabilities represent more than 60% of the total debt. Apart from labor liabilities, CFE s financial requirements amount to 56 billion pesos per year, which contrast dramatically with sales of 120 billion pesos. Even with the long awaited provision of financial autonomy, CFE could only afford 40% of total investment requirements. If CFE were totally responsible of the investment requirements, by 2011 the net debt would grow by five. The debt/asset ratio would increase from 16% in 2001 to 104% by the year CFE faces serious financial restrictions to be able to expand its infrastructure in order to meet the growing demand. Private investment will complement the government s objectives of supplying electricity at competitive rates. 15

16 Objectives of Government s Reform Proposal The main objectives of the reform are: To modernize and grant a larger degree of autonomy to the government-owned CFE and LFC. The privatization of both companies is not part of the government s proposal. To create a modern industry, that expands by itself, without a complete reliance on government financial resources. To increase private and social participation in the sector. To be able to guarantee supply of power at competitive prices. To have enough financial resources, in order to be able to expand general access to electricity. As a consequence, to be able to raise the standards of living for the less privileged, as the consumption of energy directly influences the quality of life. 16

17 Structural Reform Proposal The government s reform proposal, introduces the concept of self-consumers (users whose consumption requirements are greater than 2,500 MW hour a year). Existing schemes for self-generation, co-generation, small scale production and independent generation, will remain unchanged. The transmission grid and distribution lines will remain in the hands of the State. Private generators and selfconsumers will have non-discriminatory access to the grid. The National Dispatch Center will be transformed into an independent entity to guarantee transparency and fairness in the power dispatch system. 17

18 Remaining challenges in 2003 Structural Reform Proposal by Fox Supreme court decision Other Proposals PRI PRD 18