Government policy, faced with the energy sector, leads entrepreneurs and large companies to seek a way out
The plan was to make Mexico an indispensable player in the electric car market worldwide. Nicolás Cuevas, a young Sonoran engineer, had developed together with other colleagues an ecological process to extract and process graphite, a mineral necessary to produce lithium batteries. Having studied at the University of Arizona, the engineer and his colleagues founded Urbix Resources, a startup in mineral technology, and settled in Hermosillo, in the north of the country. But they soon began to see signs that the investment climate was changing with the new federal government in Mexico.
“We, as a startup, saw too much uncertainty in the presidency of Mexico,” says Cuevas, 34, “we didn’t know who was going to win, but we had to decide on a country and the reality is that the most stable country was the U.S. So we decided to sell our assets in Mexico and move ”. In early 2019, shortly after Andrés Manuel López Obrador came to power, they closed the graphite mill, laid off their employees, and moved to the city of Mesa, Arizona.
The Fourth Transformation, as López Obrador himself has baptized his Administration, declared a battle against many businessmen, whom he accused of “feeling that they were the owners of the country.” and of being “a rapacious minority.” Mexico is already suffering the consequences. Since he won the elections in June 2018, López Obrador put the cancellation of infrastructure projects, such as a new airport for the capital city and a private company brewing plant, to popular consultation. He supported an initiative proposed by his party to force the central bank to buy dollars in cash (violating its autonomy). He has sent initiatives to congress to ban subcontracting or outsourcing and, more recently, to reverse a constitutional energy reform in the energy sector, which was opened to private investment for the first time in 70 years in the previous administration.
International companies, such as Cuevas, are closing their offices in the country, laying off their employees because they are not sure that their investments will be respected. With them also come hundreds of millions of dollars in potential projects. This has been seen in the energy sector more than in any other sector since López Obrador has done everything possible to return to the oil and electricity parastatals, Petróleos Mexicanos, and the Federal Electricity Commission, the monopoly in their respective markets. The Business Coordinating Council (CCE), one of the largest business employers in the country, referred to the initiative sent to Congress by the president this week, which would give preference to the parastatal in the electricity industry, as “an indirect expropriation that will result in higher subsidies to the CFE, more expensive and polluting electricity.”
The English renewable energy company Solarcentury, announced to its employees in the country that it will close the office this year. Sowitec, a developed German renewable power plant company, also had to lay off some of its employees in September last year, amid uncertainty generated by the current administration. The companies say they have faced one hurdle after another since López Obrador came to power. From complicating and making the permitting procedures necessary to operate impossible, to being the target of attacks by the president during his daily press conferences, many companies are in a kind of limbo, awaiting the results of the next midterm elections, which will define whether the party in power consolidates its power or faces resistance to pass its proposals.
In addition, during the pandemic, the federal government refused to support workers in compulsory confinement with a part of their salaries, saying that companies were the ones to do it. More than 12 million jobs were lost, of which only nine million have been recovered and more than a million companies had to close permanently due to lack of income in the last 17 months, according to data from the Institute of Statistics and Geography (Inegi). Gross fixed investment, the best indicator of economic growth to come, has been falling on a monthly basis in a consecutive way since the end of 2019.
For Cuevas, getting Urbix out of Mexico was a masterful move. The company now has a 30,000 cubic foot plant and in 2020, as the global economy shrunk rapidly, it exceeded its growth and financing goals. This year, the company will begin supplying some of the largest automakers in the country with the graphite they need to make the transition to electric cars. Its goal is to reach $ 300 million in annual profits by 2025 in part driven by executive orders signed by President Joe Biden, requiring companies to purchase American products if available. before foreign products. Urbix is, at the moment, the only US company that can supply this battery graphite using environmentally friendly methods.
“We saw potential in Mexico, my roots are always there, my values, my principles were all instilled in Mexico by my parents and grandparents,” says Cuevas. But “we had to offer our investors, both American and Mexican, certainty and protection. Certainty more than anything, ”he adds.
For the English company Solarcentury, which arrived in Mexico to take advantage of the energy reform that took effect in 2015, the current business climate is very different from what they saw when they arrived. Last year, the company was acquired by the Scandinavian Statkraft and decided that its office in Mexico would close. “The current regulatory environment in Mexico is more challenging than when Solarcentury established its presence in the market and, as a consequence, Statkraft is considering various strategic alternatives for the Mexican business,” the company said in an email.
For its part, the German Sowitec, also a renewable energy company, had to reduce its workforce in September, largely because the future of its projects in Mexico is uncertain, says Alejandra Domínguez, managing director in the country and former official of the Secretariat of Environment and Natural Resources (Semarnat). “Since the new administration came to power, we have seen a decline in support for the generation of renewable energies, derived from the fact that the main objective of this government is to strengthen the CFE itself and Pemex. That is to say, these companies are the central axes where the government today wants to focus so that they can regain the strength they used to have in the past, leaving aside the private initiative ”.
Obstacles and silences
The current administration, Domínguez says, “began to hinder the ability to develop this type of project by limiting access to information from the National Electric System, obtaining permits at the federal and even local levels. The pandemic was an opportunity for the federal government to prevent the issuance of permits, since the offices of regulators and secretariats such as Semarnat, the Energy Regulatory Commission (CRE), and the National Center for Energy Control (Cenace) have remained closed, assures Domínguez. “This prevented us from obtaining the authorizations for the projects we had,” he explains.
Now, the main risk factor for the future of the company in Mexico will be the mid-term legislative and local elections this summer, says Domínguez. “The most relevant thing now is the voting on June 6 of this year to see how the Congress will be constituted,” he says, “I am talking about political parties that can benefit the current government’s positions or that can balance everything that this government”.
Meanwhile, Cuevas accepts that he left the country on time, but regrets having to bury a dream to boost his home state. “The word nationalism has a very negative connotation and what I am about to say may be controversial,” says the businessman, “but I think that all countries should nationalize one thing: the ability to produce critical products. This means not limiting private industry, but enabling it so that we have that capacity to innovate ”.