Mexico expects to save $4.5 billion after pushing firms to rework pipeline contracts

Mexico expects to save $4.5 billion after pushing firms to rework pipeline contracts
  • Clock-gray 01:52
  • calendar-gray 28 August 2019

Mexico’s government said on Tuesday it had persuaded companies to waive “significant” profits from natural gas pipeline deals signed under the previous administration after renegotiating the contracts to save taxpayers $4.5 billion, APA reports citing BBC.

The deal announced by President Andres Manuel Lopez Obrador and the head of state-run power utility the Federal Electricity Commission (CFE) at a news conference will reduce what Mexico pays the firms to transport natural gas, the government said.

The months-long dispute has caused diplomatic frictions with Canada in particular, aggravating concerns that Lopez Obrador, a veteran leftist who took office in December, could call into question contracts signed before he assumed the presidency.

Flanked by Mexican industry leaders, including billionaire Carlos Slim, the country’s richest man, Mexico’s president championed the deal as a win for the public which would give certainty to investors and encourage growth.

“To be very clear, we won because the rates of gas transportation are being reduced,” Lopez Obrador said, telling reporters that companies had agreed to sacrifice a “significant” chunk of the profits they would have made under the contracts.

“We also won,” he added, because a dispute was averted that would have caused “an air of mistrust towards the government and towards Mexico at a time when investment is needed.”

Mexico's main stock index rose by more than 1% after the deal was announced, mirroring gains in most other major Latin American markets. The peso currency nitially firmed against the dollar but later slipped by more than 0.6%.

The government is still negotiating with one of the parties involved, Fermaca, a Mexican infrastructure company contracted to build two of the seven pipelines under dispute.

Supporters of Lopez Obrador hailed the accord as a political victory for the president, who has spent years accusing business leaders of colluding with corrupt politicians to get rich.

It is less clear, however, whether companies will feel encouraged to bet on Mexico as a result of the agreement.

“He’s won the battle, but not the war,” said one industry source familiar with the negotiations.

Lopez Obrador said the deal would bring savings to public coffers of $4.5 billion over time. A statement by the CFE later said that sum was the target, and that $3.74 billion had been saved under the results of negotiations to date.

The biggest pipeline under dispute was a $2.5 billion project between Texas and the Mexican Gulf Coast port of Tuxpan. Completed in June, it was built by Canada’s TC Energy Corp and IEnova, a Mexican unit of U.S. company Sempra Energy.

Shares in IEnova rose almost 7% at one point, while those of TC Energy traded up more than 1.2%.

Another pipeline was built by Grupo Carso, a firm controlled by Slim, who rarely makes public appearances.

Faiq Mahmudov

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