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Mexico Opens Power Markets to Private Investors
Aug 18, 2002

The Mexican government has proposed a series of reforms to create competitive power markets in the country and allow private investments. The reform will allow large power consumers to purchase energy directly from private generators.

The reforms are needed to meet the fast growth in electricity demand, which has outpaced the economy in the last decade. Mexico's power generation capacity is currently around 40,000 megawatts. The government estimates the country will require 60,000 MW by 2010, with investment needs of $5 billion a year. In the meantime, public investment in the power sector has increased at an annual 1%, which is almost 6 times slower than the growth in demand.

The current legislation uprooted in the constitution requires the government to exercise exclusive control of strategic industries such as electricity generation and distribution. The government bill submitted to congress on Friday, August 16, includes a reform of the constitution to allow private investment in power markets as well as legislative amendments to make regulation of the sector compatible with a more market based environment.

The bill includes a new definition of "public service" for the electricity sector that allows large consumers to buy power directly from private generators known as independent power producers.

The proposed law establishes the National Center for Energy Control, which will regulate power transmission and distribution. The agency should be fully operational in mid-2006 or as soon as independent power producers reach a market share of 12.5%.

To ensure a stable regulatory environment, the bill proposes a new legal framework for the Federal Electricity Commission, and separates the entity from the state-owned utility known as the CFE.

The government made clear that the bill did not include plans to open the natural gas industry, and stated that reforms in this industry would be submitted in separate bill in the future.

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