The Mexican Energy Reform of 2013-2014 and the potential venues for Russian-Mexican cooperation on energy issues

_ Lutcho Andrade, MSc, Sciences Po University. Mexico City, 9 July 2020.*

In December 2013, the Mexican government passed an unprecedented and far-reaching constitutional reform in the energy sector, which fundamentally modified the regional energy landscape and Mexican foreign policy. In 2019, the Mexican government finally took the decision to bring the country’s energy sector to the international arena, beyond the sole North American region.

In 2012’s Mexican presidential election, the young and charismatic politician Enrique Peña Nieto, former governor of the key federated state of Mexico, was elected among suspicions of electoral manipulation (vote buying). This represented the return of the long-established Institutional Revolutionary Party (PRI) to power, after two six-year terms in which Mexico was led by the right wing and neoliberal National Action Party (PAN, 2000-2012). His government (2012-2018) set in motion an intensive political work strategy in order to shape an overarching consensus among the political elites of the three dominant parties (PRI, PAN and the leftist Party of the Democratic Revolution, PRD) regarding a structural reform of the energy sector, a historically controversial issue. The main focus of this reform was hydrocarbon resources (crude oil and natural gas), together with petrochemical industry and the nationwide electrical grid. It is important to note that during the rule of the PRI from 1928 to 2000, those industries were regulated exclusively by the Mexican state through their public companies Petróleos Mexicanos (Pemex) and the Federal Electricity Commission (Comisión Federal de Electricidad, CFE).

The antecedents of the above-mentioned reform go back to the 1990s, when the first changes in the institutional architecture of Pemex and CFE were implemented (in 1992 and 1995, respectively) under the rule of the “father” of Mexican neoliberalism Carlos Salinas (1988-1994). The purpose of these partial reforms was to decentralize the decision-making processes of the public energy companies in order to drag them out of the PRI bureaucratic elite. In addition, private companies were encouraged to participate in specific value chains in the hydrocarbon and electricity domains, especially in transportation and storage of natural gas, together with electricity generation. Since these very first reforming ventures, the support from international financial organizations such as the World Bank to the liberalization-privatization of the energy sector was clear, as it is attested by the existence of working expert papers in the aforementioned domains.

The 2000s were marked by the conflict between the ruling party PAN and Pemex, with the subsequent cooptation of the latter by the former. Since 2001, the World Bank intensified the publication of reports on hydrocarbon industry and renewable energies, which were used by the President’s Office to legitimize its political action against Mexico’s gargantuan hydrocarbon industry workers union (STPRM) led by Carlos Romero Deschamps. In this respect, the international experts argued in their working papers that the management of the energy sector by public entities and workers had fundamentally negative consequences for energy and economic efficiency. In reality, these changes allowed the creation of private energy enterprises, some of them owned by close relatives and friends of the presidential administration and a few of which have already been prosecuted by Mexican justice (Oceanografía, Marinsa).

Furthermore, classified diplomatic documents released by the transparency platform Wikileaks in 2011 indicate that since late 2006, the year when PAN’s presidential candidate Felipe Calderon got elected in a ballot widely recognized as rigged by a significant part of the national and international public and expert communities, the Embassy of the United States in Mexico, together with the US Agency for International Development (USAID), developed a political work strategy whose aim was to build and frame a broad public discourse concerning the need for a fundamental reform in the energy sector, through the dissemination of a neoliberal and free-market narrative. Private higher education institutions, such as the Autonomous Institute of Technology of Mexico (Instituto Tecnológico Autónomo de México, ITAM) and the Institute of Technology and Higher Studies of Monterrey (Instituto Tecnológico y de Estudios Superiores de Monterrey, ITESM), actively participated in the organization of expert round tables and discussion forums closely related to American and Canadian energy investors, by means of research and expert organisms like ITAM’s Center of Energy and Natural Resources supported by figures like Duncan Wood, Sidney Weintraub and Rafael Fernandez de Castro, or Luis Rubio’s Center for Development Research (CIDAC), formerly the Institute for Bank and Finance, (IBAFIN), an offspring of the Mexican debt crisis of 1982.

In a similar way, those in charge of the Mexican Energy Reform (MER) of 2013-2014 also adopted the free-market neoliberal doctrine as a response to the alleged efficiency crisis of the state-led energy sector, which they stubbornly claim is ontologically associated with corruption and low labor productivity in the country. Despite the use of such rhetoric, MER was actually made possible due to Felipe Calderon’s and Enrique Peña’s client politics with the US and Canada governments and with some of the biggest North American energy consortiums.

Even if MER foresees the development of the international energy relations of Mexico, in the facts the only players allowed by the media and the PAN-PRI neoliberal alliance to play an important role in the structuration of the now open energy markets are still the traditional North American partners, together with a few European countries like Spain and France by means of their national champions Iberdrola and Engie, respectively. However, despite the resistance of the ruling elite to a real diversification of Mexico’s energy trade (as attested by some journalistic productions that we will examine below), MER contributed to the emergence of a multilevel energy diplomacy in Mexico which allows the establishment of new institutional arenas for international energy cooperation beyond North America and Western Europe. To understand the extent of these institutional changes regarding the possibilities of the Mexican state to develop energy connections with non-traditional partners, it is necessary to adopt a broad scope concerning contemporary diplomacy, looking at it through a multi-level perspective.

The multilevel diplomacy is a response to the growing complexity of geopolitical and geo-economic relations since the 1990s, when the interconnections between political, economic and cultural actors proliferated in an increasingly difficult-to-analyze-and-to-act-upon global arena. This extension beyond the boundaries of national governments allows NGOs and local actors to participate in specific dynamics of the international relations. In this case, the liberalization of the energy sector in Mexico has opened up the possibility for agreements between Mexican federated states and foreign players. An example of this are the first negotiations between the Russian energy sector and the governments of the states of Yucatan, Michoacán, Hidalgo and Veracruz since 2014, mainly focused on the natural gas industry.

Since 2016, in the context of the implementation of the specific dossiers of MER, multilevel energy diplomacy has gradually taken the form of an interparliamentary diplomacy, mainly driven by the Mexican Senate. This trend has intensified since Andres Manuel Lopez Obrador arrival to power in 2018 and the concomitant formation of a more independent Mexican parliament. Concerning the relation between Russia and Mexico, an important breakthrough in multilevel energy diplomacy was the interparliamentary meeting “The Strategic Forum for Investment and Energy: Alternatives and Proposals in the Electricity, Natural Gas and Crude Oil Sectors” (Foro Estratégico sobre Energía e Inversión: Alternativas y Propuestas para la Generación de Energía, Gas y Petróleo), organized by the Upper Mexican House in February 2019.

This event represents a real opportunity for dialogue on energy issues between Russian and Mexican diplomats. From the Mexican side, the forum was organized by the President of the Eurasian Commission of the Senate, Cora Pinedo of the Workers’ Party (Partido del Trabajo), as well as by the member of the Executive Board (Junta de Coordinación Política) of the House of Representatives (Cámara de Diputados) Arturo Escobar of the Green Party (Partido Ecologista). The Russian state was represented by Alexander Babakov, Deputy Chairman of the Federation Council Committee on Foreign Affairs, as well as by Anastasia Samarkina, who represented Russian energy exporters through Bureau Legint. This forum is a good example of a multilevel diplomatic work, capable of undertaking a positive evolution of Mexican foreign and energy policy, while it encourages a better implementation of MER through the real diversification of Mexico’s energy trade. However, these kind of efforts aiming to decentralize Mexican foreign economic and security policy have raised a strong disapproval from the main proponents of the neoliberal model, who advocate for an exclusively North American energy partnership.

For example, one top-line journalist of the Mexican-American journal El Financiero-Bloomberg, Jorge Berry, published a caustic article entitled “Russian Gifts” (Regalos rusos) in which he accused the Russian delegation of the Federation Council and the organizers of the Mexican Senate of corruption, for the mere fact of exercising their constitutional right to develop interparliamentary diplomatic initiatives. Even more revealing of this state of business is the article written by Leon Krauze “Welcome to Mexico, Mister Babakov” (Bienvenido a México, señor Babakov), published by the historically pro-American newspaper El Universal, in which he scornfully fustigates the Russian appointees in Mexico and more generally the Russian government and state. It is worth mentioning that Leon Krauze is the son of Enrique Krauze, one of the most influential ideologists of the PAN-PRI neoliberal alliance and a supporter of Mexico’s integration with the United States. Krauze senior is also accused of being one of the main organizers of the “Operation Berlin”, whose objective was to subvert the presidential campaign of the incumbent president and that was supported by the prominent economic groups that benefited the most from the harsh and muddy liberalization of the Mexican economy. Krauze junior, for his part, became the main promoter of the narrative of Russian interference in the Mexican presidential election of 2018.

Delving into this matter, one should not forget that the political and economic groups led by the closely related clans Krauze-Kleinbort and Castaneda-Gutman have deep ties with the Hispanic political community in Miami. According to an investigation by the weekly newspaper Proceso in May 2020, in this key American city top-level US intelligence agents dialogued for years, in a systematic and non-official way, with Felipe Calderon’s government (2006-2012), mainly through his Secretary of Public Security Genaro García Luna, who is currently under judicial procedure in New York, indicted for criminal association, false witness and drug trafficking. Concerning Calderon’s figure, it has also been recently discovered that the former Mexican president has been an active supporter of a “G2” between the US and China since its departure from office, lobbying at a global scale for an economic model based on the interdependent relation between “cheap-labor” exporting peripheral countries and “money-lender” importing countries in the core of the system, mainly the United States and the European Union by means of their quantitative-easing monetary policies. As it is widely documented nowadays, this model has been first introduced in a regional scale thanks to the political work of Mexican neoliberal elites since the signing of the North American Free Trade Agreement (NAFTA) in 1993, which covered all sectors of the North American economy with the exception of energy industries.

Notwithstanding that the liberalization of the Mexican energy sector started with a biased scope, the implementation of a truly international MER continues in 2020, despite the opposition of an important part of civil society to a real and healthy diversification of trade in the energy sector, despite the government bumps on energy policy related to the sharp political conflicts within this sector and also in spite of the substantial slowdown and destruction of the global economy caused by the confinement measures adopted worldwide in response to COVID-19. A proof of this is the ongoing multilevel energy diplomacy of Mexico, which engages the country with non-traditional partners such as Russia through a more democratic and multipolar international cooperation.

*First published in Russian on PICREAD-Creative Diplomacy.

Leave a Reply

Your email address will not be published. Required fields are marked *