How Mexico's energy sector plans were affected by the midterms

With additional reporting by James Young

The results of Mexico’s midterm elections on Sunday have drastically reduced the likelihood that the government will be able to pursue constitutional changes if proposed reforms of the energy sector are struck down by the courts.

The administration needed to secure a supermajority in both chambers to pursue constitutional reforms that could have allowed it to bypass potentially unfavorable court rulings and the latest estimates suggest the ruling Morena party and its allies were only able to secure 278 seats in the 500-seat lower house, 56 short of the 334 needed. As a result, the party and its allies would only have a supermajority in the senate, where seats were not at stake, instead of both houses as was the case previously.

“With a smaller majority in congress for the alliance headed by Morena, attempting constitutional reform will be much more difficult, which will in turn narrow the options for achieving some of the president’s more controversial reforms, particularly recent proposals affecting energy,” Charles Seville, Americas sovereigns co-head at Fitch Ratings, said in a release.

According to Duncan Wood, VP for strategy and new initiatives at think tank the Wilson Center, the results may lead to a slight reconfiguration in terms of strategy for the government’s energy agenda, but the country is still likely to pursue regulatory changes that attempt to strengthen state-owned enterprises.

“Instead of changing the constitution to repeal the 2013 energy reforms … what [the president] is going to do I think is focus on legislative changes that can be approved by a simple majority. He will focus on regulatory changes that will continue to create an uneven playing field in the energy sector,” Wood told BNamericas.

Before the result, important administration figures, including President Andrés Manuel López Obrador (AMLO) and energy minister Rocío Nahle, had said they would attempt a constitutional change in the second half of the president’s term if ongoing energy sector reforms were struck down.

So far, the administration has attempted two large-scale legislative overhauls, one of the electric power industry and one of the hydrocarbons industry, seeking to strengthen public utility CFE and NOC Pemex while constraining private participation in the energy sector. 

A further reform of the hydrocarbons industry ending special regulation aimed at controlling Pemex’s monopolistic influence over the fuel sales market was approved by congress and published in mid-May.

All three reforms have been suspended by federal courts pending a series of appeals. The suspensions are temporary measures meant to preserve the state of the market while the courts decide on the constitutionality of each law. If rulings are unfavorable, the matter is likely to make its way through the legal system and ultimately be decided by Mexico’s supreme court.

“We’ll see what happens to those [reforms] as they work through the court process, but I can see other legislation being formulated by the president and the party that maybe is less aggressive than those, but still undermines the role of the private sector in the energy sector. The president’s goals have not changed: he just has to now take a bit of a reset in how he’s going to achieve them in a different way,” Wood said.