Mexico Reaches Deal With Pipeline Operators on Gas Delivery Contracts -- 2nd Update
28 August 2019 - 4:56AM
Dow Jones News
By Robbie Whelan
MEXICO CITY -- Mexico's president announced a deal to end a
standoff with several natural-gas pipeline operators over contract
prices, allowing them to avoid international arbitration and begin
increasing gas deliveries across the country.
Appearing at news conference with pipeline company leaders
including Carlos Slim, Mexico's richest person, President Andrés
Manuel López Obrador said the agreement proves that "through
dialogue we can arrive at deals that are good for our nation."
Although terms of the deal weren't immediately made public, the
president and Manuel Bartlett, head of Mexico's state-run power
utility, the CFE, said Tuesday that the service fees paid by the
CFE will be reduced and set to a fixed rate, rather than escalating
each year, as planned before. The terms of the contracts will be
also extended, they said.
"The relevant part is that instead of having growing fees, we
have equalized fees," said Mr. Slim, who controls pipeline operator
Carso Energy. "This ensures that the CFE will pay less at the end
of the day and be able to take advantage of today's low interest
rates."
Mr. López Obrador said the new deal will eventually result in
savings of $4.5 billion for the government, or more than 30% of
what the government was obliged to pay under the original
contracts. Several pipelines, including the important South
Texas-Tuxpan submarine pipeline, which was completed in June, could
begin operations within weeks.
Privately, people with direct knowledge of the talks pushed back
against the numbers given by Mr. López Obrador, saying that the
nominal savings realized by the government would be about $600
million, much lower than the president's estimates.
Since early July, the Mexican government has been renegotiating
contracts for seven natural-gas pipelines in various stages of
completion with four different companies: Canada's TC Energy,
Mexico's Carso Energy and Fermaca, and Ienova, the Mexico unit of
San Diego's Sempra Energy. Tuesday's deal didn't include Fermaca,
which operates two of the seven pipelines in question.
"This deal guarantees the supply of gas for the electric
industry for many years, so that we won't have outages, and for the
development of national industry," the president said. "We're going
to have sufficient gas in Mexico."
Messrs. López Obrador and Bartlett both said that Carso Energy
was the first of the four to reach a deal with the government. Mr.
Slim, whose company has only one of the seven contracts being
renegotiated, proposed the terms of the deal directly to the
president in mid-August, according to people involved in the
talks.
Mexican companies have complained for years that natural gas and
electricity prices are too high. Under the previous administration
of Enrique Peña Nieto, Mexico sought to attract more private
drillers, rig operators and pipeline builders into the market to
try to increase production and efficiency.
But the CFE has struggled to make the country's power grid more
reliable, partly because of the lack of a consistent supply of
natural gas, and partly because of the utility's aging power
generation infrastructure, much of which is badly in need of an
upgrade.
This year, power outages have plagued the country, especially in
the tourism-heavy state of Baja California Sur, a manufacturing hub
in the northwest, and the mostly rural Yucatán Peninsula in
Mexico's south.
Private-sector associations, which have been advising the
pipeline companies in their negotiations with the government,
applauded Tuesday's deal, saying it was a "win-win" for all
parties.
"This is a memorable day because it reflects the government's
willingness to give us certainty," said Carlos Salazar, president
of the Business Coordinating Council, a private-sector chamber that
was advising on the negotiations. "Today, Mexico gets cheaper
energy than Europe, cheaper energy than Asia, and this is a huge
advantage to compete to grow ... This marks the beginning of a
process of important investment for our country."
Write to Robbie Whelan at robbie.whelan@wsj.com
(END) Dow Jones Newswires
August 27, 2019 14:41 ET (18:41 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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