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Mexico reaches deal with private gas pipeline firms

MEXICO CITY (AP) — Mexico's president said Tuesday his government has reached a deal with private gas pipeline operators to solve a dispute over fees and payments.

President Andrés Manuel López Obrador had accused private companies of taking unfair advantage of the country when the contracts were signed under previous administrations, in part because some contracts required the government to pay whether it received gas or not. He had ordered the contracts suspended, but started talks with the firms.

López Obrador acknowledged that the dispute with companies from the U.S., Canada and Mexico could potentially harm Mexico's reputation among investors.

"We avoided a dispute that would have implied going to international tribunals, a dispute that would have taken years to resolve and which would have generated an atmosphere of mistrust toward the government and toward Mexico at a time when we need investment," López Obrador said.

In June, former Canadian Ambassador Pierre Alarie wrote, "I am deeply concerned by the actions of the CFE (Federal Electricity Commission) and the signal they send that ... Mexico will not respect the gas pipeline contracts."

The dispute involves seven pipelines, some of which are completed and some of which are blocked by court appeals or protests. In some cases, those projects have been blocked for months or even years. Mexico already had a reputation of being a place where rights of way are hard to secure, making infrastructure projects in general more expensive and difficult.

On Tuesday, López Obrador welcomed business magnate Carlos Slim, Mexico's richest man, to his daily morning news conference and praised the companies for taking what he claimed were 30% lower profits, in exchange for changing fee structures to a flat rate. The term of the contracts will also be extended, apparently in some cases from 25 to 30 years.

López Obrador said the deal would save Mexico — especially the CFE, the national electricity utility, the biggest single consumer of gas — as much as $4.5 billion over the next three decades.

Slim suggested that more up-front income in the contracts would allow the companies financing advantages. Slim's Carso Energy was one of the builder-operators of the pipelines. The rest included companies like Canada's TCEnergía (TCEnergy, formerly TransCanada) and IEnova, a subsidiary of U.S. Sempra Energy. An agreement with a fourth Mexican company is still pending.

The pipelines would allow Mexico to import abundant U.S. natural gas and distribute gas to underserved areas of the country.

In a statement, IEnova said that "the agreement would not have been possible without the direct and personal intervention of the president."

"This agreement is the result of compromises on both sides, to take advantage of infrastructure that is essential to bring natural gas to millions of Mexicans and the country's industry."

While pipeline construction has sparked confrontations in many countries, in Mexico such conflicts are particularly intractable. As a result, Mexican electricity rates and gas prices are much higher than in the United States, despite the proximity of the two markets.

In the northern border state of Sonora, for example, a group of Yaqui Indian residents have blocked the last kilometers of a pipeline for the last three years. The 518-mile (835-kilometer) line is practically finished, and other Yaqui communities have reached agreements to allow it to pass through their lands, but one 500-member community has stopped the entire project, saying it doesn't want a about 2.5-mile (4-kilometer) stretch that passes through their land.

Also Tuesday the Mexican peso lost value against the U.S. dollar to close over 20 to the greenback for the first time since Dec. 19, 2018, according to Banco BASE. The financial group said there is nervousness over the global economy amid the U.S.-China trade war.