Chile
Even in Chile, there are criticisms of what privatisation has produced. Wholesale electricity prices have dropped sharply, so the generating market has become much less attractive to new investors, which has led to a slowdown in investments. This has created a position where Endesa of Chile, which owns 60% of the country's generation, also has as its shareholders the owners of the Chilean national grid. It is an understatement to say that its market power is considerable.
Mexico
Although the economy is now the biggest in the region, its energy industry has been almost untouched by the private sector. The government of President Vicente Fox had wanted to reform the constitution to allow foreign companies to take a bigger role in the electricity industry. In the event, it looks as though it will have to settle for a more modest, legal reform.
The main reason for the limited scope of the reforms is that the Partido Revolucionario Institucional (PRI), the biggest party in congress, wants only a modest reform. The PRI is the biggest party in both chambers of congress. Unfortunately for Fox, the PRI policy is much narrower than the broader proposals he had suggested. Fox argues that opening up the electricity industry to foreign capital will boost the economy and make Mexican industry more competitive.
The PRI agreed a line on the scope of the reforms on 25 October. Crucially, it agreed that it would not support any change to the constitution. Articles 27 and 28 enshrine state control and ownership of the electricity industry. Specifically, the party's Consejo Político Nacional (CPN) specified that neither the Comisión Federal de Electricidad (CFE), which runs the national grid, nor the main distribution company, Luz y Fuerza del Centro, should be privatised. The CPN also said that the government should retain the right to set prices.
This means, effectively, that the electricity distribution system will remain under state control and ownership. It is hard to see any foreign companies trying to break into the electricity distribution market when they will have to face such dominant and entrenched players.
Legal issues
What the PRI did agree to were changes in the way the electricity system is run to clarify the arrangements for investments by private companies. Last year, the supreme court shook policymakers by ruling that the backdoor privatisation of the system was unconstitutional. What had been happening was that private companies had been exploiting the provision under which industrial companies could build their own power stations provided they sold any excess electricity to the state-run CFE. This loophole had been stretched so far that its provisions had become inverted: private companies were building power stations from which a token amount of power went to industrial companies but the overwhelming bulk went to the CFE.
President Fox swallowed his pride and hailed the PRI's decision. He said that it was a move forward in favour of reform. The statement from the presidency shows how weak the executive's position has become. The threat from Elba Esther Gordillo - the number two in the PRI and the party's leader in the lower chamber of congress - that the PRI would rule from congress, is now fact. The traditional constitutional arrangement, under which the executive would produce bills that would be reviewed and debated by the legislature, has been inverted. Now the PRI, which probably commands a majority
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