Mexico & Nafta - 11 November 2003

Exactly what reforms to the electricity industry the biggest party in congress, the Partido Revolucionario Institucional (PRI), will agree to is far from clear. Big hitters from the party, notably José Murat, the governor of Oaxaca and a key ally to the party leader Roberto Madrazo, have come out against the reforms. Murat is lining up with Manuel Bartlett, the controversial former interior minister and governor of Puebla, now a senator, who will not brook any dilution of state control of the electricity industry. Murat and Bartlett are leading what they hope will turn into a broad movement against the government's proposed reforms. The left-wing Partido de Revolución Democrática has joined in the alliance and so have some trade unions. The PRD's perennial presidential candidate Cuauhtémoc Cárdenas backing the alliance.

The alliance against what is seen as an attempt to privatise the industry is blow for the government and the number two in the PRI, Elba Esther Gordillo. She is the leader of the PRI in the lower chamber of congress and has been emollient about the government's proposals.

The alliance is a blow to the government which has been courting the PRI. one point last month the PRI seemed to have agreed on a line, but the Murat-Bartlett alliance shows that the party is far from united on the issue. The PRI line was, anyway, to support a much narrower reform than the broader proposals the government had originally floated. President Fox and the government argue that opening up the electricity industry to foreign capital will boost the economy and make Mexican industry more competitive. The PRI decision will limit the transformation Fox wants. The PRI 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 face such dominant and entrenched players.

Concessions
What the PRI did agree to were changes in the way the electricity system 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 token amount of power went to industrial companies but the overwhelming bulk went to the CFE.

President Fox 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 in the legislature, is dictating to the government.

The other blow for Fox and his government is that the PRI mandated the senate to negotiate with the government over the details of the reform. PRI senators, led by Manuel Bartlett, a former interior minister and governor of Puebla, are the most hostile to any broad reform of the electricity industry. They are prepared to countenance only modest reforms to boost generating capacity.

The senators do not believe the government's claims that the country will face blackouts and power cuts unless it invests heavily in expanding its electricity industry. As the government does not have the spare cash, the expansion would have to be paid for by private companies which, in turn, means opening up the industry.