(Bloomberg) -- Mexico’s Senate approved a bill that will hand President Claudia Sheinbaum more control over state energy companies, expanding the government’s role as the country’s largest player in the sector.
The Senate voted 86 to 39 in favor of the change that would reclassify state oil company Petroleos Mexicanos and utility Comision Federal de Electricidad as “public companies,” giving the government more control over them and no longer requiring them to turn a profit. Previously, the companies were classified as “productive state companies,” which receive limited support and have to be profitable.
The legislation would also eliminate lithium concessions and reserve the sector for the national government.
The bill must now be passed in state legislatures, where the ruling coalition has large majorities, before it reaches the president’s desk to be signed into law.
The reclassification was initially proposed by Sheinbaum’s mentor and predecessor, former President Andres Manuel Lopez Obrador, and will guarantee the government controls 54% of domestic electricity supplies, with the remainder managed by private companies. Critics worry it will discourage private investment, especially in electricity transmission, and hinder the transition away from fossil fuels.
The reform will ensure that Pemex and CFE make decisions that are aligned with the interests of Mexico’s government rather than the private sector, Energy Minister Luz Elena Gonzalez said last week during the president’s daily press conference.
Pemex, the world’s most indebted oil company, has struggled in recent years to boost crude output, which has slumped to half its peak from 20 years ago, and claw out from under its nearly $100 billion debt burden. Repeat accidents, oil spills and methane leaks have caused some investors to flee.
AMLO, as the former president is known, lavished as much as $80 billion in capital injections and tax breaks on the company over the course of his term, which largely failed to boost production and meaningfully reduce the debt. CFE has also suffered from years of underinvestment in power distribution and transmission, which has sparked seasonal blackouts when demand on Mexico’s power grid spikes.
--With assistance from Alex Vasquez.
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