Mexico’s AMLO Sees $4.5 Billion in Savings in Pipeline Pacts

By Amy Stillman
Aug 27, 2019

(Bloomberg) A deal that will save Mexico $4.5 billion has been reached with three pipeline companies to carry natural gas throughout the country, according to President Andres Manuel Lopez Obrador.Carlos Slim’s Grupo Carso SAB was the first to reach agreement with the country’s Federal Electricity Commission, or CFE, Lopez Obrador said during his morning news conference on Tuesday. Sempra Energy’s Mexico unit IEnova and Canada’s TC Energy Corp. then “acted responsibly” by also agreeing to contracts, the president said.

The highest profile project — IEnova and TC Energy’s $2.5 billion Sur de Texas Tuxpan marine conduit — will be the first in operation, CFE Chief Manuel Bartlett said at the news conference. Lopez Obrador said it would come online in about a week. The tariff rate on the pipeline was reduced by 33% to 38%, while the rate reduction for some of the other contracts was between 19% and 32%, said Miguel Reyes, a director at CFEnergia. Fermaca Enterprises is still in talks with the state-owned power company.

“In the end, the silver lining of this is there’s an improved level of communication” with business leaders, said economist Rogelio Ramirez de la O, who advised Lopez Obrador in his 2006 presidential campaign. What’s changed, he said, “is that contracts need to have the best interest of Mexico.”

Ienova shares rose 5.3% after the announcement, their biggest gain since January. Shares of Grupo Carso also rose 1.7%.

ROO.AI Oil and Gas Field Service Software

At the heart of the months-long dispute are seven take-or-pay contracts signed with the previous administration that saw CFE covering the cost of natural gas that was never delivered due to force majeures caused by permitting problems and social conflicts. CFE had threatened the companies with arbitration proceedings for at least $3 billion.

The agreement extends the contracts for the Guaymas El Oro and Sur de Texas Tuxpan pipelines by 10 years and “puts an end to the international arbitration processes of the designated pipelines,” IEnova said in a statement.

Sempra “is pleased that IEnova was able to reach a mutually agreeable resolution to the contracts with CFE on these important pipelines,” the company said in a statement. “The Sur de Texas-Tuxpan and Guaymas-El Oro pipelines are among Mexico’s most important infrastructure projects.”

Carlos Salazar, the head of the CCE business group, said that the deal gives certainty to investors. The conflict had attracted the attention of business groups concerned that it could set a precedent for the government to change any existing contract that it sees as unfair.