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Mexican president’s radical energy reform defeated in congress

Mexico’s opposition politicians have denied the country’s nationalist president the two-thirds majority he needed to change the constitution and implement a radical energy reform bill.

The reform, which would have guaranteed state electricity group CFE 54 per cent of the market, spooked the private sector, opposition and the US government. Critics argued that it was bad for investment, the economy and the environment.

The proposal aimed to transform the regulatory landscape for electricity, including cancelling power generation permits and prioritising CFE power over private renewables on the grid.

After a day of debate marked with insults and chanting, Mexico’s lower house voted 275-223 in favour of the reform, well short of the two-thirds majority required for a constitutional change.

Following the stinging setback, López Obrador on Monday promised to submit legislation to nationalise the country’s lithium sector, saying: “There will be a company to explore for it, extract it, commercialise it.”

He added that passing this law would only require a simple majority in Congress — held by his Morena party and its allies in both chambers.

The result of the energy-reform vote will be welcomed by most investors but analysts expect political and regulatory uncertainty in the sector to continue.

Since the reform was put forward in October, business leaders, the government and lawmakers have negotiated behind the scenes and debated in public. But the gap between the visions of President Andrés Manuel López Obrador and the opposition, which opened energy markets to private investment in 2013, was too wide to bridge.

Instead, Sunday’s vote was more about López Obrador making a political point, said analysts. The government wanted to portray the opposition as representing the interests of foreign energy companies, while it was working for the Mexican people.

López Obrador had previously said that if the reform was voted down, he would immediately send a new initiative to congress to nationalise the country’s lithium resources.

“I said it in my update on Tuesday: whatever happens we’re protected against treachery. Tomorrow I’ll explain it again,” he wrote on Twitter on Sunday hours before the vote.

His coalition has the simple majority to pass secondary legislation. The issue is less immediately material to the private sector, as the value of Mexico’s lithium, which is mostly in clay deposits that are difficult to mine, is unclear.

López Obrador, who grew up in an oil-producing state and is a firm believer in state control of oil and electricity, thinks liberalisation of the sector was plagued by corruption and was too favourable to private companies.

“It’s not just another topic, one more item on the agenda but rather it’s something at the heart of [his] . . . agenda, because it’s at the heart of the history of Mexico,” said Lorenzo Meyer, a historian who is broadly supportive of López Obrador’s administration. “The opposition can vote down the bill but not the idea.”

Energy experts agreed, expressing doubt that the sector would attract much investment even without the constitutional reform. The government has other tools at its disposal, such as blocking permits through regulators and trying to implement a secondary bill that the Supreme Court did not invalidate in a ruling this month.

“The energy sector isn’t going to change, it’ll stay as it’s been until now without investment or with very focused investment,” said Carlos Ochoa, a lawyer in Holland & Knight’s Mexico City office who has worked in state companies CFE and Pemex.

He said the lack of a constitutional majority was also important for the broader economy and investment climate. “It is a good message for other industrial sectors to know that at least there are checks and balances,” he said.

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