Mexican President Andrés Manuel López Obrador at his presidential inauguration in 2018. (Source: lopezobrador.org.mx)
In 2013, Mexico passed a constitutional reform liberalizing the national energy sector, allowing foreign investors in the oil and gas sectors for the first time since the energy sector was nationalized in 1938. As a result, Mexico saw an influx of billions of USD in investments, a reversal in declining oil production, and a new foundation for economic growth. Since taking office in 2018, populist president Andres Manuel Lopez Obrador (AMLO), with the help of the legislative majority of his coalition Movimento Regeneracion Nacional (MORENA), sought to oppose the privatization of the energy sector and advocated for the reestablishment of state-owned energy enterprises. Now, five years into his term, AMLO’s policies continue to be directed towards ending the privatization of Mexico’s energy sector.
Background of the Mexican Energy Sector
Federal-Owned Building of Petróleos Mexicanos, known as PEMEX. (Source: apporea.com)
Mexico has remained one of the only Latin American countries to retain a monopolistic state player in its electricity sector. The Mexican electric power system was initially led by foreign private investors, with most Mexican plants owned or run by these foreign companies. During the 1920s, the Mexican energy industry grew substantially, but the majority of its growth concentrated on industrial and urban centers throughout the country. Rural areas of Mexico were left with minimal to no electric development, leading to the establishment of the National Commission of Motive Power (Comisión Nacional de Fuerza Motriz) in 1922 to regulate the private industry.
However, due to administrative and constitutional limits, the NCMP was very limited in power. Soon after, the National Electric Code was established, extending federal control to matters relating to the energy industry and declaring the energy sector a “public utility.” In 1937, the Federal Commission of Energy (Comisión Federal de Electricidad) was established to undertake planning programs for the national energy system. This led to the consolidation of the energy systems, thus nationalizing the energy sector to transform it into an integrated state-owned monopoly. The state had become the exclusive owner of the Mexican energy sector.
Since then, Mexico has been dependent on oil as a crucial mechanism of the economy. But the early 21st century saw declining oil production and underdevelopment in Mexican oil while the electricity sector was suffering from inflated prices, lack of funding, and increasing developmental lag. In 2013, President Enrique Peña Nieto ended the state’s monopoly by transforming the energy and petroleum sector into an open market. Peña Nieto’s goals were to increase competition from private players and accessibility to foreign companies, lower electricity and fuel prices, and reduce corruption through transparency.
Nevertheless, Mexican support for these reforms has been shaky, and as of today, the widespread belief is that the reform has yet to be successful. Resource nationalism, an increase of full state control over the industry and investment, is deeply rooted in the public consciousness, making Mexicans weary of privatization. So, when a populist presidential candidate promised to reverse neoliberal reforms, he won in a landslide victory.
Populism and Nationalism: Andres Manuel Lopez Obrador
Andres Manuel Lopez Obrador with supporters during a campaign rally in Puebla, Mexico. (Source: Alfredo Estrella/AFP/Getty Images)
Overwhelming support for AMLO exhibited the disillusionment of the Mexican citizenry in regards to traditional political parties and their rampant corruptive practices. The core promises of AMLO’s campaign—ending corruption, reducing drug violence, and introducing extensive social welfare programs—were immensely popular with voters. AMLO promised a dramatic transformation within the nation—what he deemed “the fourth transformation”—but now, in the second half of his six-year term, he and his administration are riddled with controversies and criticisms.
AMLO polarizes Mexico by using his presidential powers to erode democratic institutions. He has reduced the budgets of autonomous governmental agencies, gotten rid of hundreds of state-owned trust funds, violated electoral laws, and threatened judicial independence. Keeping with his platform, AMLO attempted to amend the Mexican constitution to return to resource nationalism. Although it failed to pass through Congress, he still holds significant power to reshape legislation in his favor. AMLO has sought to bring energy back under government control of state-owned companies, such as the Federal Oil Company, PEMEX, and public utility, CFE. He has built his platform on the belief that Mexican energy sources should be developed and refined by the state for domestic use, and his current oil policy is directed towards increasing domestic production and limiting imports. But arguably, PEMEX does not have the technological methods or funds to increase domestic production at a level that meets increasing demands. Similarly, AMLO has refused to support and continue private renewable energy investment within Mexico.
The Present and Future: A Return to Resource Nationalism?
These attempts at self-sufficiency and resource nationalism are directly linked to revolutionary views present in the Mexican collective. The 2013 privatization reforms are seen as a failure by the Mexican collective because its benefits were not seen in the short-run—but actual change takes time. AMLO’s attempts at a return to energy nationalism are holding Mexico back from creating an efficient and modern system that would greatly benefit the Mexican economy and, in turn, the Mexican people. However, it would be naive to believe that privatization of the energy sector would create drastic changes within the economy and Mexican society when the country is still rattled by drug violence, insecurity, and profound levels of corruption. Privatization is just one step towards an influx of investment and technology to improve the state’s future.
This article was edited by Brianna Karishma Budhram.