Constitutional reforms put Mexico's energy sector on back foot, says Baker Institute

The constitutional reforms that Mexico approved this year will make it difficult for the country to attract foreign investment in energy in 2025.

That is the main takeaway for the energy sector from the wide-ranging Mexico Country Outlook 2025 report, published this month by Rice University’s Baker Institute for Public Policy.

"Few energy companies, whether in hydrocarbons or power, are likely to venture into Mexico in 2025 and possibly beyond, if the environment is perceived to be hostile to private and foreign investment," the report warns.

"This in turn will discourage larger corporations from considering Mexico as a place to conduct business, especially if they have their own commitments to consume cleaner energy."

The full report is available for subscribers in the Documents box in the top-right corner of the screen.

Reforms deter investors

Earlier this year, Mexico's congress approved a series of far-reaching constitutional reforms, most notably a proposal to replace appointed judges with ones elected by popular vote.

Specifically in the energy sector, the reforms have granted new privileges to federal oil and gas company Pemex and state power utility CFE. 

Congress also voted to eliminate the independent regulatory agencies for the energy sector, CNH and CRE.

Meanwhile, the Claudia Sheinbaum government has limited the share of the private sector in the electric power generation market to a maximum of 46%, with CFE holding the other 54%.

These moves will discourage investment in the sector, according to the report.

"Public and private companies participating in the energy transition will likely take their capital to other friendlier investment markets," the Baker Institute forecasts.

"Mexico’s power generation – and certainly its power distribution grid – will experience important setbacks in the year."

Energy supply in Mexico will continue to fall behind demand in 2025, the institute forecasts.

"For 2025, ideology is expected to prevail over pragmatism, at least until the energy sector faces a major crisis."