Sheinbaum's energy policies will cost Mexico 1% of GDP per year, says think tank

The next Mexican government will have to spend 1% of GDP on the energy sector every year to fund president-elect Claudia Sheinbaum's energy policies, according to a report by think tank CIEP.

Sheinbaum has pledged to continue with the energy nationalism of her predecessor Andrés Manuel López Obrador (AMLO) when she takes office in October.

Those policies have already come at a high cost to Mexico according to CIEP, an independent institute which is focused on economics and budgetary affairs.

During AMLO's six-year administration, national oil company Pemex has received 1.87 trillion pesos (US$105bn) in tax reductions and capital injections, CIEP estimates.

Pemex, which is struggling under a debt burden of more than US$100bn, will face maturities of 38.5% of its debt over the course of the Sheinbaum administration. CIEP estimates that supporting Pemex and enabling it to meet these maturities will cost the new government US$77bn in capital injections and tax cuts.

At the same time, Sheinbaum has stated that she will maintain her predecessor's policy of limiting the private sector's share of the electricity generation market to 46%, with the remaining 54% reserved for state-owned utility CFE.

The investments in generation and distribution needed to maintain that share, combined with the continuation of subsidies for end-users, will lead to a final cost for the energy sector of US$123bn over the Sheinbaum administration, CIEP estimates. 

That will be the equivalent of spending 1% of Mexican GDP every year, it said.

Energy nationalism has also slowed the country's energy transition by limiting private investment in renewable energy, the think tank said. The proportion of electricity generated by clean power in Mexico fell from 27.4% in 2021 to 21.9% in 2023.

"The continuity of energy policy... represents a challenge for public finances," CIEP said. "The energy policy of the next administration will face the challenge of returning to the path of an energy transition with fiscal sustainability."

"The start of this process will be difficult, as a fiscal consolidation of 3% of GDP is expected in 2025."

Meeting the energy aims of the new administration will require higher public spending at a time when Mexico is trying to reduce its fiscal deficit.

In this context, the think tank said that a more flexible approach to the participation of private investment in the sector could relieve the pressure on public finances.