AMI: THE 5 MAIN ENERGY RISKS OF A CLAUDIA SHEINBAUM ADMINISTRATION

[Note: In case you missed it, the voters in Mexico at least nominally chose to “elect” Claudia Sheinbaum as their first female president. Sheinbaum isn’t just any old woman, mind you. She is also Mexico’s first Jewish president, in addition to being a radical socialist. Persistent rumors claim she also has heavy ties to the drug cartels that really run the failed state of Mexico.

Obviously, the elevation of such a person to the highest office in the country presents an array of likely challenges to the energy business. Below is an excellent analysis of those challenges from Arthur Deakin, Director of Energy Practice at Americas Market Intelligence.]

Claudia Sheinbaum’s 20%-plus polling advantage materialized into a landslide presidential victory, putting an end to AMLO’s six-year administration that all but froze private investment in both renewable energy generation and transmission infrastructure. Many energy investors and operators are optimistic about a new administration, but Morena’s excessive power could make it harder than expected for foreigners to do business in the country. In preparation for our webinar on the topic, AMI’s energy practice outlines the five major risks to the energy sector during the next six years:

1. A potential constitutional reform of the energy sector. With Morena (and its coalition partners) securing a supermajority in both chambers of Congress, and their control of 75% of the nation’s governorships, AMLO’s initial attempts to overhaul the 2013 energy reform are more likely to succeed.  For the month of September, he will have new congressional and elected officials and governors in office while he remains President (until October 1^st), giving him a narrow window to pass controversial reforms (he has proposed 20 constitutional reforms).  If AMLO somehow fails to reverse or overhaul the 2013 energy reform in September, President Sheinbaum will have at least three years (till midterms) to make changes.  That will sow doubt among some investors.

2. A doubling down on Pemex. Sheinbaum has vowed to refinance the state oil company’s U$100+ billion in debt and venture Pemex into new sources of revenue (e.g., lithium, geothermal), while simultaneously continuing AMLO’s legacy of propping up state companies. Mexico subsidized about 35% of gasoline’s retail price in 2022, using funds from its oil revenues.¹ If Sheinbaum keeps subsidies in place to prevent the rise of gasoline prices, as well as continue to finance Pemex losses and mounting interest costs – Mexico’s coffers and Pemex bondholders are likely to suffer.