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Mexico CFE seeking $899 million in pipeline dispute; firms to talk

Edgard Garrido / Reuters

The logo of Mexico's state-run electricity utility known as the Federal Electricity Commission, or CFE by its Spanish acronym, is seen outside its Mexico City office, August 27, 2014.

By Abraham Gonzalez / Reuters

MEXICO CITY
Petroleumworld 07 03 2019

Mexican national power company CFE said on Tuesday it is seeking $899 million in a dispute with natural gas pipeline firms and talks with Canada's TC Energy Corp ( TRP.TO ) and billionaire Carlos Slim's Grupo Carso ( GCARSOA1.MX ) would start within days.

The Comision Federal de Electricidad (CFE) [COMFEL.UL] is seeking to negotiate “fairer” terms for a number of pipeline contracts signed by Mexico's previous government. President Andres Manuel Lopez Obrador has questioned the contracts, arguing they are too costly.

The dispute has led to diplomatic friction with Canada and concerns that Lopez Obrador's government could put in jeopardy contracts signed under previous administrations that he characterizes as part of a corrupt “neo-liberal” era.

Canada's ambassador to Mexico on Tuesday raised concerns about CFE's actions but urged a start to talks, saying that he felt confident a solution could be reached.

CFE head Manuel Bartlett lashed out at the critics of the Mexican government's efforts to rework the deals, suggesting they were ill-informed about the process and that the companies had sought arbitration before the government did so.

The pipeline companies “pursued arbitration before entering into negotiations with us,” Bartlett told reporters, saying the government wanted to recover $899 million in payments made to pipeline companies

The companies involved include U.S.-based Sempra Energy's ( SRE.N ) Mexican unit IEnova, Canada's TC Energy and Mexican firms Fermaca and Grupo Carso.

Following Bartlett's comments, IEnova denied having begun arbitration against CFE and reiterated its readiness to hold talks with the utility.

“The company did not begin any arbitration process against the CFE following a meeting with the CFE Chief Executive the past February 13,” IEnova said in a statement.

Since that date, IEnova said it has been waiting for an invitation to continue talks.

Canada's ambassador to Mexico, Pierre Alarie, told reporters that the CFE's statements had generated confusion.

“There is a difference between a legal proceeding and arbitrage. The companies did protect themselves, but they didn't start an arbitrage process,” he said.

He also said the CFE's actions were at odds with Lopez Obrador's vows to respect contracts, echoing concern from the U.S. Chamber of Commerce. However, he expressed optimism about resolving the dispute.

“I am sure that we are going to find a solution. Dialogue has to begin with the CFE, and it has to happen soon,” he said.

The CFE has challenged the contracts through a mediation process overseen by the London Court of International Arbitration (LCIA).

The LCIA declined to comment on Tuesday to maintain the confidentiality of the arbitration process.

The CFE began talks with pipeline builder Fermaca on Monday, and talks with the other companies would begin in the next few days, Bartlett said.

One of the pipelines at the center of the dispute, known as the Gasoducto Marino Sur de Texas-Tuxpan, was completed this month. But for transportation services to begin, the CFE still had to issue a notification acknowledging the work had been completed, IEnova has said.

Not only have Canada and others raised concerns about the dispute, Moody's ratings agency said the spat was “credit-negative” for the utility, the companies involved and the sector as a whole.

 



Reporting by Abraham Gonzalez and Lizbeth Diaz, Additional reporting by Sharay Angulo; Writing by David Alire Garcia and Daina Beth Solomon; Editing by Leslie Adler and Richard Pullin from Reuters.

bloomberg.com/ 07 02 2019

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