The Federal electricity commission (CFE) lost last year an international arbitration case against the Canadian ATCO Ltd and had to pay damages of about $85 million, according to three people familiar with the matter.
Although it is a gas pipeline whose construction was contracted by the previous government, the case shows the type of compensation that Mexico could have to pay in disputes in which the current government headed by the president Andres Manuel Lopez Obrador is surrounded by controversial measures to strengthen state control of the energy market.
The London Court of International Arbitration made the award in ATCO’s favor in October 2021, the sources said. After legal fees and interest were added, the sum amounted to about 100 million dollars, which the CFE paid to ATCO in December, they added.
ATCO could not comment because its contractual relationships with the Mexican state-owned company are confidential, a spokesman for the company said, adding that it remained committed to seeking low-emission and efficient energy solutions in Mexico. The court declined to comment and CFE did not respond to requests for comment.
The firm pursued arbitration because after President López Obrador took office in 2018, the CFE canceled a contract signed with the Canadian firm in the last administration to build a gas pipeline near the central city of Tula on the grounds that the work it was incomplete, the sources said.
ATCO had already built most of the 17-kilometre Ramal Tula gas pipeline, which was to supply a power plant. But the company said it could not finish the final stretch due to resistance from local communities, so it invoked force majeure.
The Canadian company argued that Mexico had not done enough to allow it to complete the pipeline and the court agreed with it, the sources said. The project had initially been estimated as an investment of 66 million dollars when it was awarded in 2014.
AMLO has modified the law to strengthen the position of the CFE and the state oil company Pemex at the expense of other independent operators, arguing that previous governments skewed the market in favor of private capital.
Still, in July, the US Trade Representative’s office requested dispute resolution talks with Mexico over billions of dollars in energy investments, arguing that López Obrador’s policies violated the USMCA.
Canada quickly joined the US complaint, which officials are working to resolve.
The CFE said in its 2021 annual report that it was facing 21 international arbitration cases and had significantly increased its reserves for litigation and lawsuits.
However, there have been signs that Mexico is finding ways to overcome some disputes.
In August, the Canadian company TC Energy said it had closed a deal with the CFE to build a $4.5 billion gas pipeline in southeastern Mexico.
In the ad, TC Energy He said that the two parties had agreed to “mutually put an end” to international arbitration related to other pipelines that the Canadian company was building in Mexico.
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