Mexico's Energy Secretary Stopped and Goes as $58 Billion Power Plans Grind Onward

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). At the beginning of the last full week of May, Mexico’s energy secretary, Felipe Calderon Hinojosa was looking into the next decade of the country’s electricity sector and estimating that $58.3 billion would be needed in investments over the period to meet the demand for power, which is expected to grow at an annual rate of 5.6%.

On the last day of May, the energy secretary resigned his post after President, Vincente Fox criticized his possible presidential ambitions on the grounds that it would make it more difficult to work with Congress. This is one event in a long line of stops and starts in Mexico’s attempts to reform and develop its power generation and transmission systems.

Mexico’s generation capacity increased 28% under President Fox between 2000 and 2003 with private investors contracting on long term deals with the state power company CFE. Calderon had said in the days before his resignation that there should be no problems for generation and the physical supply of power for the next three to four years, but that the market needed to be opened and the right legal conditions for all parties participating to be put in place. He said that prices in the electricity sector are currently not competitive with U.S. rates and that a lot of changes were needed to reach more competitive prices. The lack of competitiveness had seen China pass Mexico in the share of goods sold into the U.S. market in 2003.

The government has been working towards passing electricity sector reforms in Congress but the opposition PRD party has been blocking the moves. Calderon was perceived to be a bridge builder with the opposition.

Assuming that the macro plans will not change with the energy secretary job, transmission developments will receive a portion of the estimated $6 billion a year to be spent in the electricity sector. In May, Elina de Occidente (EdO) completed $106 million finance arrangements for the construction of three transmission lines and six substations in northwestern Mexico. CFE have awarded EdO the construction contract on the project.

Also in May, Iberdrola Energia (MADRID:IBE) (Madrid, Spain) awarded the contract for the construction of an 1180 MW combined cycle power plant in Altimara to ICA Fluor (PEC 65000390). The new plant will join a cluster of power generation units (PEC 65000384/427) in the thriving northern industrial zone of the country. Altamira V’s power output will assist in stabilizing the grid in the area. The power will be sold to the Federal Electricity Commission under its program to develop independent power producers.

The $570 million project includes land, financing costs, generation equipment, and engineering, procurement and construction (EPC) that covers a 36-month, lump sum turnkey project. ICA Flour has the EPC contract that includes start-up services. Scheduled for completion in November 2006, the gas-fired plant is designed to have minimal environmental impact. ICA Fluor is owned jointly by Fluor Corporation (NYSE:FLR) Aliso Viejo, California) and Empresas ICA Sociedad Controladora (Mexico City).