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Making Sparks Fly In Mexico (Int'l Edition)


International -- Finance: Privatizations

Making Sparks Fly in Mexico (int'l edition)

Mexico's energy boss draws fire over electricity reforms

In a country long known for its sprawling state companies, Mexican Energy Secretary Luis Tellez Kuenzler has his work cut out for himself these days. The 40-year-old Tellez is charged with opening up Mexico's two national power companies to commercial competition within three years--and then selling them off. Privatizing the Federal Electricity Commission (CFE) and the smaller Central Light & Power (LFC) is President Ernesto Zedillo's last major reform--and a delicate business, as Tellez learned recently. After he testified before the Mexican Senate on Apr. 8, a swarm of electricity workers pelted Tellez with lightbulbs and pummeled his car when he clambered into it. "It's risky to stick your head out, but I don't care," Tellez says. "I'm convinced I'm doing the right thing."

There's little arguing with that. With demand rising at 6% a year, the CFE is already hard-pressed to produce the power Mexico needs. Neither can it afford the $25 billion Mexico must invest to meet its target, a one-third increase in installed capacity--to 52,000 megawatts--by 2005.

Tellez plans to attack this problem in stages. He wants to open up the system to private power generation, which now accounts for less than 10% of supply. This proposal has already attracted interest from such companies as Houston-based Enron Corp. and AES Corp. of Arlington, Va. Tellez also wants to put distribution concessions up for open bidding. Selling off state-run generation plants would follow.

Tellez, a mild-mannered technocrat with a doctorate in economics from the Massachusetts Institute of Technology, has made more than 70 public appearances over the past few months--everything from TV shows to community meetings--to rally support. But he's having trouble getting his message across. The 30,000-member Mexican Electrical Workers, which supported the bulb-throwing attack, fears big job losses at LFC, which is hugely inefficient. The Mexican Electrical Industry Workers Union, with 75,000 members and ties to the ruling Institutional Revolutionary Party (PRI), at first supported Tellez but is balking in the face of growing public skepticism.PRI PROBLEMS. Tellez faces an uphill battle in the Mexican Congress, too. The center-left Party of the Democratic Revolution accuses Tellez of selling out to foreigners. Legislators, sharing none of Tellez' sense of urgency, are unlikely to debate the issue before September. And with presidential elections due next year, the center-right National Action Party--which supports electricity reform--may be reluctant to hand the PRI a legislative victory.

Even some PRI members oppose the plan. The failure of other recent privatizations--toll roads, banks, petrochemical plants--may already cost the PRI votes. Zedillo's critics fault him for not selling the plan more vigorously. But "in Mexican politics, it's never the right time" to introduce controversial legislation, says Tellez, relaxing in his office in a gray cardigan. "But this project is the key to keeping our economy competitive."

The electricity commission is certainly in a bind. Mexico's power grid, built and run by Canadians at the turn of the century, was nationalized in 1960, when just 45% of Mexicans could turn the lights on. The CFE took that to 95% over the next 30 years. Having slimmed down in recent years, the commission is an efficient producer--and will probably absorb the corrupt, money-losing LFC. But with the national budget under constant pressure, the commission can no longer make needed investments alone. The 1992 reform that allowed limited private competition failed to attract enough interest because producers still had to sell their power to the CFE.

Tellez is no stranger to tough assignments. As under secretary of agriculture in the early 1990s, he helped break up the communal landholdings created after the 1910 revolution--another of Mexico's sacred institutions. When Mexico devalued in 1994, Tellez was in the hot seat again. By then Zedillo's chief of staff, he helped negotiate a $50 billion bailout with the Clinton Administration and the International Monetary Fund. Tellez got the energy portfolio three years later.

Tellez is confident that he can get his initiative through. If he does, Petroleos Mexicanos will be the only major state-owned property left. While Tellez thinks "very big changes must be carried out at Pemex," he's leaving that job to a successor. Let someone else get doused in Mexican crude.By Geri Smith in Mexico City


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