More than $ 5,810 million in securities held by pension funds in Mexico would be in jeopardy if Congress approves the energy reform bill sent by President Andrés Manuel López Obrador, according to an analysis by the US firm REDD Intelligence. The funds that administer the pensions invested in energy projects that were born with the reform of the electricity sector of the previous federal Administration, which the current Government wants to reverse to give the State control of the market.
REDD estimates that the total amount of private investment in the sector affected by the bill reaches 45,000 million dollars, from national and international investors. The figure that would affect the funds that administer the pensions of Mexicans, known as Afores, is lower, but the loss would impact the millions of Mexicans who have a pension and not just investors such as large banks or companies.
“It is only 2% of all the assets that Afores have, but it is still a world of money,” explains Xóchitl Herrera, co-author of the report. “The Afores are already charging annual commissions and on top of these costs you have these handicaps, which, at the time, were a good investment, but now, if the reform passes as it is, it is less money for the retirement of Mexicans.”
As of the opening of the energy market in the country in 2013, private companies undertook wind farms, solar and oil projects for which they sought capital. 90% of the financing of renewable energy projects was made through debt, either in bonds or other financial instruments. The Afores invested in these financial instruments because of the attractive long-term returns they promised once they went online. Now, if their licenses are suspended or their contracts canceled, as contemplated in the López Obrador constitutional reform, that money would be lost and those affected would be retirees.
“Foreign pension funds have also invested in this market,” says the report, also signed by specialist Édgar Sigler, “for example, the CDPQ of Canada and the Mexican pension fund CKD IM bought an 80% stake in eight parks operated by the Italian company Enel in 2018. The US fund BlackRock and the investment fund Actis also own large portions of some of these types of projects, said two industry sources, “says REDD. This means that the pensions of citizens in these countries could also be affected.
President López Obrador seeks to reform the Constitution so that only 46% of the country’s electricity generation is in the hands of private companies, compared to the 62% they currently contribute. The Government seeks to make the state company Comision Federal de Electricidad (CFE) the predominant player in the sector, to guarantee its monopoly. If the bill is approved, it would result in the immediate cancellation of all electricity generation permits and contracts of private companies, which contravenes the trade agreement with the United States and Canada, the T-MEC, so that companies could go to arbitration courts. The initiative also limits the generation of electricity through clean energy.
“It would be almost impossible for the CFE to cancel its power purchase contracts with natural gas plants, since without them, the state company would not be able to cover 100% of the energy demand with its own plants,” says the REDD report. . “However, in its current form, the bill would give the government the ability to end all contracts and permits between the private sector and the CFE.”
Credit rating
On Tuesday, Finance Secretary Rogelio Ramírez de la O said in a virtual event that he is “attentive” to the impact that the reform would have on the country’s credit rating, which is used in the markets to define the interest rate that will be applied. collects who issues debt. Credit rating agency Moody’s said in a statement on October 6 that the proposal is negative in credit terms as it could “decrease operational transparency, discourage private investment in power generation, curb the generation of renewable energy and probably increase the cost of electricity ”.
“We are very attentive both to the reactions of the market rating agencies and to make sure we are doubly sure that we have a consistent model, which is also consistent with market rules,” said Ramírez de la O at the event organized by Atlantic Council, as reported by the newspaper Reform.
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