Archive for October, 2009

Comision Federal de Electricidad, Mexico’s largest state power company, will take over Luz y Fuerza del Centro, the smaller money-losing state power company, Interior Minister Fernando Gomez Mont said in a press conference in Mexico City.

“This is a measure to preserve responsibly the fiscal resources of all Mexicans,” Gomez Mont said. Luz y Fuerza provides power to a metropolitan area of 20 million people and several states surrounding Mexico City, transmitting 30 percent of the entire country’s electrical output.

President Felipe Calderon issued a decree today ordering the liquidation of Luz y Fuerza, according to a notice published today in the nation’s official gazette. Local media outlets reported that federal police officers seized the power company headquarters and other facilities by 11 p.m. yesterday.

Calderon is seeking to bolster Mexico’s fiscal position as it faces the threat of a lower credit rating from Standard & Poor’s and Fitch Ratings, both of which have a negative outlook for Mexico’s sovereign ranking.

Calderon is increasing taxes and closing three ministries, while also cutting some government spending. On Sept. 8, Calderon submitted to Congress tax law changes that would generate 176 billion pesos ($13.2 billion) in additional revenue next year and spending cuts of 218 billion pesos.

Unsustainable Situation

The financial situation of Luz y Fuerza is unsustainable, Gomez Mont said. If Luz y Fuerza were left to continue, the federal government would have to transfer to the company about 300 billion pesos by 2012, he said.

Between 2003 and 2008 Luz y Fuerza generated sales of 235.7 billion pesos, while its costs reached 443.2 billion pesos, according to the decree. By June of 2009 the company reported a loss of 30.6 percent of the power that it distributed.

“Almost no other power company in the world shows a percentage of power loss registered by Luz y Fuerza,” the decree said.

The severance costs for the federal government could reach 20 billion pesos, Finance Minister Agustin Carstens said at the same press conference.

The federal government will absorb the pension liabilities from Luz y Fuerza, Labor Minister Javier Lozano said at the conference. Mexico Anticipates to rehire “an undefined number” of Luz y Fuerza workers, Lozano said.

CFE, as the Mexico City-based company is known, and Luz y Fuerza are the only companies allowed to sell and distribute power in Mexico. Private companies are allowed to generate power and sell it to the state-owned distributors or export the electricity.

Under the government decree, the Secretary of Energy will have three days to publish the legal conditions to start liquidating Luz y Fuerza del Centro.

Reactions to this shutdown have been many. Positive reations from most if not all of Luz y Fuerza’s clients, tired of the corruption and the low quality of service. Negative reactions from the left and the union. The Electricity Worker’s Union have been protesting and do not agree with this decision (of course). AMLO and his gang are jumping on the wagon as well to denounce this action, which in my eyes seems to be pretty just. They claim it is against the constitution to dissolve this company, since – according to the constitution – only congress could do this. Problem is that Luz y Fuerza was conceived as a presidental decree, and as such it has no protection from the congress to be dissolved.

In order to enforce this shutdown, police and military took Luz y Fuerza’s installations in Mexico City, Cuernavaca and other places – to ensure the continuity in electricity supply – since the union said they would not be at fault if Mexico City and nearby communities ended up without electricity during this conflict.

Mexico has the worst electricity supply in the western hemisphere, and probably the highest prices. It is time somebody did something about it. Way to go, Calderón!