Why Sheinbaum's 'energy nationalism' could pave the way for private players

While Mexico's president-elect Claudia Sheinbaum is likely to continue the current energy policies of the Andrés Manuel López Obrador administration, she will also be forced to be pragmatic and technocratic.

Electricity demand is rising as nearshoring gains traction, but the grid is creaking and federal oil company Pemex laboring under a massive debt burden. 

Sheinbaum's promise to clean up energy generation, however, would be a departure from López Obrador's approach. To achieve that goal, she would need the private sector, although her political background suggests Sheinbaum would allow it to play only a secondary role.

To gain insight into the energy changes to come, BNamericas talks to Pamela Starr, professor of international relations and public diplomacy at the University of Southern California and a senior advisor at business consultancy Monarch Global Strategies.

Starr has 30 years of experience in Mexican politics, economics and policymaking and has advised former Mexican foreign minister José Antonio Meade as well as former US Secretary of State Hillary Clinton and other government officials on both sides of the border.

BNamericas: How will the Sheinbaum administration use energy policy to achieve its goals?

Starr: Mexico needs enormous investments in transmission and generation and especially in clean energy. The electricity grid is operating at its limits and there have been numerous blackouts this summer. Mexico needs to create a welcoming investment climate for business and ensure reliable supply of low-cost electricity if it is to make the most of the nearshoring opportunity. 

The Mexican budget deficit is around 6% of GDP. The government has cut back spending and Sheinbaum has said that she will not raise taxes. That means the only way to reduce the deficit is to grow the pie and increase revenue. 

Sheinbaum is wedded to the idea of nearshoring as the best way to grow the economy. To create a more welcoming business climate to investors, I think she will open the market to privately owned clean electricity suppliers. She believes renewable energy will power the fourth transformation [of the republic] that is the political goal of her party.

BNamericas: What are the main differences between her energy policies and those of López Obrador?

Starr: Sheinbaum is a true Latin American leftist. Like López Obrador, she is a strong advocate for energy sovereignty and she is no friend to private capital. She believes in using the State to raise living standards and to fund universal social programs to help pull the working class out of poverty. 

Where she does differ from López Obrador is in her attitude to clean energy. Unlike him, she believes in climate change. López Obrador was wedded to the idea of oil as a fuel for development. She sees petroleum as the fuel of the 20th century, not the 21st century. Sheinbaum’s main energy adviser, Jorge Islas, is a clean energy specialist, and she has been clear that she wants greater investment in clean energy in Mexico.

With the left wing of her party strengthened by the elections, it is still not certain how much political autonomy and flexibility she will have to achieve her clean energy objectives.

Nevertheless, there is a strong feeling among private sector power companies that there will be attractive opportunities for renewable energy generation in Mexico. For political reasons, many of these opportunities will probably be structured as public-private partnerships, which make it look as if the public sector and [public utility] CFE are leading the way. 

BNamericas: And what role could Pemex play in the energy transition?

Starr: There are enormous investment needs in Pemex, which is hugely indebted and the sick old horse of the world’s oil and gas industry. There has been talk about the Mexican government buying back Pemex bonds to reduce its cost of financing and relieve the burden on the national budget. 

Pemex is heavily investing in refining rather than in exploration and production. With a lower debt burden, Pemex could have a greater ability to invest in exploration and production and even in renewable energy.

Sheinbaum has also suggested that she will transform Pemex into an energy company with interests beyond oil and gas. We do not know yet. Whatever the case, it looks as if Sheinbaum will take a much more technocratic approach to running Pemex than López Obrador, while continuing with his energy nationalism.