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JPMorgan on Mexico Energy Reform Proposals/Court Rulings

MEXICO
  • Last year, President AMLO submitted a preferential fast-track initiative known as the Law on the Energy Sector (LIE). While the initiative was approved in early March and signed into law on March 9, 2021, it has not been implemented because it has been blocked by a number of legal actions.
  • Furthermore, the opposition bloc, the state of Colima, and the antitrust agency (COFECE) presented a constitutional challenge before the Supreme Court of Justice (SCJ). Today, the SCJ will determine if the constitutional challenge and the amparos were legal or if the bylaw changes of the LIE should prevail.
  • The key question is whether this decision from the Court supersedes the discussion of the constitutional reform proposed by AMLO in late October last year or not. The answer is not straightforward as yesterday both the opposition bloc (PRI, PAN, and PRD) and the government coalition (Morena, PT, and PVEM) made important, contrasting statements. The former confirmed it will not endorse the constitutional reform from AMLO, while the latter doubled its stakes saying it will debate the constitutional bill as soon as April 11, the day after the recall referendum.
  • If the opposition bloc is serious on its position, the government coalition won’t get the (two-third majority) votes, which leaves two options for Morena’s bloc: propose a watered down bill to allure opposition lawmakers or rely on the SCJ vote in favor of the LIE and let the constitutional reform quietly die.
  • Interestingly, increasing pressure from U.S. officials could suggest Morena and its allies would settle for the LIE, hence avoiding a major escalation with USMCA and European/Asian countries that represent the interest of a number of private companies potentially affected by the constitutional reform.
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