Mexico

MEXICO’S POWER ON THE AUCTION BLOCK
By David Bacon
The American Prospect, January 2003

MEXICO CITY – If the proposals for privatizing Mexico’s electrical system bear an eerie resemblance to California’s disastrous experiment in deregulation, it should come as no surprise. The proposals share some of the same authors. In fact, as Jeffrey Skilling and Ken Lay were setting up shadow corporations to hide Enron’s huge US losses in 2001, other Enron executives found time to hobnob with Mexican politicians and design projects in cooperation with that country’s industrial elite.

Enron executives advised Fox on energy policy in his transition to the presidency. Following the election, the power axis connecting the big industrialists of Monterrey, some of Mexico’s most powerful private businessmen, with their counterparts across the Rio Grande in Texas, paid off for the Texans. On April 4, 2002, Enron Energia Industrial de Mexico received a license from Mexico’s Electricity Regulatory Commission to build a 245 megawatt plant in partnership with Vidreria Monterrey and Vidriera Guadalajara (two big glassmakers), Grupo IMSA (a steel and autoparts giant), Industrias Whirlpool and other big Mexican companies.

Other familiar players in the California debacle are also building plants. Bechtel Enterprises, the multinational construction giant based in San Francisco, partnered with Shell Generating Ltd. to set up Intergen Aztec Energy, and build a plant near Mexicali, generating 750 megawatts. Two thirds of the power will be sold in Mexico, and a third exported to California. Sempra Energy Resources, a San Diego generator that figured in the state’s power meltdown last year, is building another power station near Mexicali. Its 600 megawatts will all be sent to the US, and the gas for its boilers will come from the US in a Sempra-built pipeline, making the plant the first true energy maquiladora.

Controversy over the rapid growth of private power generation in Mexico boiled over this year, as Fox introduced legislation to privatize the industry. A former CocaCola executive, Fox is allied with the Monterrey industrialists and their US energy partners. His proposals carry the blessing of the World Bank and the IMF, who have been mandating the privatization of Mexican industry for over a dozen years. And another powerful Texan who now occupies the White House, US President George Bush, supports Fox’s direction.

It is an impressive transnational constellation of political power. In the US, similar corporate forces have steamrolled over ratepayers, unions and regulators, in a successful effort to open power generation to the free market. Mexico, however, has something the US doesn’t, that so far has stopped these proposals in their tracks – the Mexican Electrical Workers Union (SME). At the end of September, the union and its allies brought 50,000 people into Mexico City’s main square, the Zocalo, to protest Fox’s plans. The union vowed to distribute 10 million leaflets urging rejection.

It wasn’t the first confrontation between the union and the forces of neoliberal reform. Fox’s predecessor, Ernesto Zedillo, also proposed privatizing electricity in 1999. The union formed the National Front of Resistance to the Privatization of the Electrical Industry, collected 2.3 million signatures on petitions in three weeks, and brought a million angry capitalinos into the streets. Zedillo was defeated, the first time a privatization initiative in Mexico had not succeeded.

In Mexico, two state-owned power companies provide electricity. The Federal Electrical Commission (CFE) brings power to all of the country except Mexico City and part of central Mexico, which is supplied by the Power and Light Company. The SME, the union at the Power and Light Company, is one of the oldest and most democratic in Mexico.

The SME charges that Fox plan is a giveaway to the 1% of Mexican users, all big companies, who consume 70% of the nation’s energy. That should be familiar to Californians, since the original deregulation plan drafted by Pacific Gas and Electric and some of the state’s largest corporations also proposed to allow the largest power consumers to opt out of the system, leaving residential users and small businesses holding the bag.

The SME warned that under Fox’s plan, small users would shoulder all of the expenses of maintaining the transmission grid and the distribution system, while the existing companies would lose most of their revenue and go bankrupt.

Adding fuel to the fire, Fox proposed to entice private companies to build generating plants, by financing them by using the national pension fund (the equivalent of Social Security.)

Opponents claim both national companies would probably then be sold off once they were broke, or replaced in the market by foreign-owned ones. New owners would increase profits by raising rates for small customers, while cutting wages, laying off workers, tearing up union contracts and holding down expenses on maintenance. These are not just doomsday predictions -- they describe the bitter experience at Mexico’s railroads, copper mines, airlines and other state-owned businesses privatized over the last decade.

The proposal brings back bad memories to older Mexicans of the era before nationalization. In 1960, the then-private, foreign owners of Mexico’s power system wanted a big rate hike. They pressured the government by threatening to stop bringing lines into rural areas and building new generating capacity. But President Gustavo Diaz Ordaz nationalized them instead.

Diaz’ action was very popular, and in a line with Mexico’s most historic nationalization in 1936 -- oil. Most observers believe it’s only a matter of time before Mexico’s national oil company, PEMEX, itself is sold off. National ownership of electricity is therefore not just a matter of rates and jobs, but a symbol of Mexico’s independence from the US. “We don’t just look at this as workers, but as Mexicans,” says the electrical union’s secretary for external relations, Ramon Pacheco. “Yes, we’d lose our contract and jobs, and the company would go bankrupt. But this is about more than that -- it’s about the direction our country is taking.”

The first crack in the nationalization of electricity came in 1979, when the technocrats bent on bringing market reforms to the Mexican economy became the dominant force in the federal government. In cooperation with Dow Chemical President John Connally, they envisioned a “North American Energy Project,” that would connect the electrical grids of Mexico, the US and Canada. As president, George Bush Sr. later supported the idea.

Popular opposition prevented the inclusion of the electrical and oil industries in the NAFTA negotiations. But in 1992, then-President Carlos Salinas de Gortari allowed private companies, including foreign ones, to build and operate plants in Mexico so long as they consumed or exported all the energy they produced, or sold it to the Federal Electricity Commission. According to Jesus Navarrete, a leader of Mexico’s other electrical workers union, SUTERM, almost all new government construction of power plants halted after 1992, while private construction surged ahead. In addition to Enron, Sempra and Intergen, 23 other foreign companies have been granted building permits.

One of Fox’s principal arguments, therefore, for his privatization plan is that the Constitution needs to be changed to legalize what already exists. Energy Secretary Luis Tellez says Mexico needs to add 22,000 megawatts to its present 35,000 watt capacity, and that only foreign investors will come up with the necessary $50 billion. Navarrete and others, however, point out that cogeneration between the CFE and the oil monopoly PEMEX alone could generate 9,000 new megawatts.

"The industry could be self-financing if it weren't for the government's policy of disinvestment," says José Luis Hernandez of the SME. "What they really want to do is enrich some of their favorites by selling it off at deflated prices.”

A knowledgeable authority on the US side of the border agrees. Carl Wood, member of the California Public Utilities Commission, says “it’s crazy for Mexico to be doing this. Mexico is blessed with lots or energy resources. But this proposal accomodates the needs of the large consumers without meeting those of the public, and sticking the cost of old technology with consumers. That was always the root of California’s deregulation problems.”

Nevertheless, Fox’s argument swayed not only his own party, the conservative National Action Party, but also the leaders of the Party of the Institutionalized Revolution (PRI), which governed Mexico for 71 years before Fox’ election.

In May, the Mexican congress passed a resolution opposing any changes in the Constitution to make privatization possible. The PRI itself took a similar position in its own national meeting. But after Fox invited PRI leaders Roberto Madrazo and Elba Esther Gordillo to the presidential residence of Los Pinos for a late night snack, they happily announced they’d give his proposal serious consideration. The PRI has 40% of the votes in the Chamber of Deputies and the Senate, and Fox’ National Action Party another 40%. If Madrazo and Gordillo can hold their members, Fox’ scheme has more than the required two-thirds majority.

But some of the PRI’s most conservative, but nationalist leaders, including its former chair Manuel Bartlett, have organized vocal opposition. “Look at the energy chaos in California,” he declared. “Do they want to sell the American failure to us?” Bartlett introduced an alternative bill that would ban any increase in the 10% of current generation that is presently done by private companies. San Diego Congressman Bob Filner also traveled to Mexico City to denounce the deal, partly because the Sempra and Intergen border plants are expected to produce 3000 tons of air pollution annually. Imperial Valley residents a few miles north of the border will breathe their effluents.

“These are the same companies that robbed and defrauded people in the US,” he told the daily La Jornada in July. “Why should Mexicans trust them not to do the same here?”

Wood also warned of another danger -- that the swings of the market could bring about manipulated shortages and periods of extremely high prices, as they did in California. “Mexican industry might not be able to absorb those price increases, nor raise prices on its own products in the world market,” he explained. “Price spikes in electricity might therefore cause industrial activity to stall.” He called the US companies behind the proposal “the same old gang of thieves.”

An alliance of the SME, Mexico’s new independent union confederation, the National Union of Workers, the leftwing Party of the Democratic Revolution, and nationalist elements in the PRI have all vowed to cooperate in mass protest.

The vote has become a referendum on the direction for Mexico’s economic development.

For two decades, both PRI and PAN governments have pursued the same policies oriented towards attracting foreign investment with privatization and low wages. For people on both sides of the border, privatizing electricity and oil is a watershed decision. Either the Fox government will succeed in finally burying the last and biggest remnants of Mexico’s old nationalist development policy, or he will suffer a defeat which may make it possible to recover a road toward national economic independence.

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