A Charged Atmosphere

If the proposals for privatizing Mexico's nationalized electrical system bear an eerie resemblance to California's disastrous experiment in deregulation, it should come as no surprise. The proposals, after all, share some of the same authors. In fact, as Jeffrey Skilling and Ken Lay were setting up shadow corporations to hide Enron's huge U.S. losses in 2001, other Enron executives found time to hobnob with Mexican politicians and design projects in cooperation with that country's industrial elite.

Enron executives advised incoming President Vicente Fox on energy policy during his transition period. Since Fox took office in 2000, a slew of power companies, many of them U.S.-based, have gone on a construction spree in Mexico in anticipation of legislation that will privatize the nation's electric-power industry, which has been nationalized for the past four decades. On April 4, 2002, Enron Energia Industrial de Mexico received a license from Mexico's Electricity Regulatory Commission to build a 245-megawatt plant in partnership with a number of major Mexican companies, including a number of Monterrey-based industrialists who've had longstanding relationships with their Texas counterparts.

Bechtel Enterprises, the multinational construction giant based in San Francisco, partnered with Shell Generating Ltd. to set up Intergen Aztec Energy and build a plant generating 750 megawatts near Mexicali. Two-thirds of the power will be sold in Mexico; the remainder will be exported to California. Sempra Energy Resources, a San Diego generator that figured in the state's power meltdown last year, is building another power station near Mexicali. Its 600 megawatts will all be sent to the United States, and the gas for its boilers will come from the United States in a Sempra-built pipeline, making the plant the first true energy maquiladora.

Controversy over the rapid growth of private power generation in Mexico boiled over last year when Fox introduced legislation to privatize the industry. Those proposals have become so controversial that Fox may have lost the votes in the Mexican Congress needed to pass them. A former Coca-Cola executive, Fox is allied with the Monterrey industrialists and their U.S. energy partners. His proposals carry the blessing of the World Bank and the International Monetary Fund, which have been urging the privatization of Mexican industry for more than a dozen years. Not surprisingly, another powerful Texan, President George W. Bush, is a longtime supporter of building U.S.-owned power plants south of the border.

In the United States, a similar alliance of corporate and political forces steamrolled all opposition to deregulated, private-sector power generation -- at least until California's experience with privatization became such a manifest debacle. In Mexico, however, an alliance of progressive organizations and old-guard nationalists has thus far managed to thwart Fox's campaign.

The key institution that has stopped privatization in its tracks is the Mexican Electrical Workers Union (SME). At the end of September, the union and its allies brought 50,000 people into Mexico City's main square, the Zocalo, to protest Fox's plans. The union vowed to distribute 10 million leaflets urging rejection.

It wasn't the first confrontation between the union and the forces of neoliberal reform. In 1999, Fox's predecessor, Ernesto Zedillo, also proposed privatizing electricity. The union formed the National Front of Resistance to the Privatization of the Electrical Industry, collected 2.3 million signatures on petitions in three weeks and brought a million angry capital dwellers into the streets. Zedillo was defeated, marking the first time a privatization initiative in Mexico had not succeeded.

In Mexico, two state-owned power companies provide electricity. The Federal Electrical Commission (CFE) brings power to all of the country except Mexico City and part of central Mexico, which is supplied by the Power and Light Company. The SME, the union at the Power and Light Company, is one of the oldest and most democratic in Mexico.

The SME charges that Fox's plan is a giveaway to the top 1 percent of Mexican users -- the big companies that consume 70 percent of the nation's energy. That should sound familiar to Californians, as the original deregulation plan drafted by Pacific Gas and Electric and some of the state's largest corporations also proposed to allow the largest power consumers to opt out of the system, leaving residential users and small businesses holding the bag. The SME warns that under Fox's plan, small-scale users would shoulder all of the expenses of maintaining the transmission grid and the distribution system. The union fears that the two existing power companies would lose most of their revenue and go bankrupt. Adding fuel to the fire, Fox proposes to entice private companies to build generating plants; his plan is to finance them using the national pension fund (the equivalent of Social Security).

Opponents say both national companies would likely be sold off once they become bankrupt, or they'd be replaced in the market by foreign-owned firms. New owners would increase profits by raising rates for small-scale customers while cutting wages, laying off workers, tearing up union contracts and holding down expenses on maintenance. The opponents are not just issuing doomsday predictions -- they describe the bitter experience at Mexico's railroads, copper mines, airlines and other once-state-owned businesses privatized over the last decade.

To older Mexicans, Fox's proposal brings back bad memories of the era before nationalization. In 1960, the then-private, foreign owners of Mexico's power system wanted a big rate increase. They pressured the government by threatening to stop bringing lines into rural areas and building new generating capacity. But then-President Gustavo Diaz Ordaz nationalized the companies instead. Diaz's action was very popular, and in line with Mexico's most historic nationalization -- of oil, in 1936.

In fact, national ownership of electricity is not just a matter of rates and jobs but a symbol of Mexico's independence from the United States. "We don't just look at this as workers but as Mexicans," says Ramon Pacheco, the electrical union's secretary for external relations. "Yes, we'd lose our contract and jobs, and the company would go bankrupt. But this is about more than that -- it's about the direction our country is taking."

Such popular opposition prevented the inclusion of the electrical and oil industries in the NAFTA negotiations. But in 1992, then-President Carlos Salinas de Gortari allowed private companies, including foreign ones, to build and operate plants in Mexico so long as they consumed or exported all the energy they produced -- or sold it to the Federal Electrical Commission. According to Jesus Navarrete, a leader of Mexico's other electrical workers union, the Sole Union of Electrical Workers of the Mexican Republic (SUTERM), almost all new government construction of power plants halted after 1992; private construction, meanwhile, surged ahead. In addition to Enron, Sempra and Intergen, 23 other foreign companies have been granted building permits in Mexico.

One of Fox's principal arguments for privatization, therefore, is that the national constitution needs to be changed to legalize what already exists. Energy Secretary Luis Tellez says that Mexico needs to add 22,000 megawatts to its present 35,000-watt capacity, and that only foreign investors can come up with the $50 billion required to add that capacity. Navarrete and others, however, point out that cogeneration between the CFE and the oil monopoly Pemex alone could generate 9,000 new megawatts.

A knowledgeable authority on the U.S. side of the border is skeptical of Mexico's drive toward privatization. Carl Wood, a member of the California Public Utilities Commission, says, "It's crazy for Mexico to be doing this. Mexico is blessed with lots of energy resources. But this proposal accommodates the needs of the large consumers without meeting those of the public, and sticking the cost of old technology with consumers. That was always the root of California's deregulation problems."

Nevertheless, Fox's argument swayed not only his own party, the conservative National Action Party, but also the leaders of the Party of the Institutionalized Revolution (PRI), which governed Mexico for 71 years before Fox's election. In May, the Mexican congress passed a resolution opposing any changes to the constitution that would make privatization possible. The PRI took a similar position in its own national meeting. But after Fox invited PRI leaders Roberto Madrazo and Elba Esther Gordillo to the presidential residence of Los Pinos for a late-night snack last September, they announced that they'd give his proposal serious consideration. The PRI has 40 percent of the votes in the Chamber of Deputies and the Senate, and Fox's National Action Party has another 40 percent. If Madrazo and Gordillo can hold their members, Fox's scheme has more than the required two-thirds majority.

But some of the PRI's most conservative yet nationalist leaders, including its former Chairman Manuel Bartlett, have organized vocal opposition. In fact, there may now be just enough PRI numbers to deny Fox the supermajority he needs. Bartlett and many PRI leaders are historically and currently linked to many of Mexico's old-guard, machine-dominated unions (including SUTERM), which also oppose privatization. "Look at the energy chaos in California," he declared. "Do they want to sell the American failure to us?" Bartlett introduced an alternative bill that would ban any increase in the 10 percent of current generation presently provided by private companies.

An alliance of the SME, the National Union of Workers (Mexico's new independent union confederation), the left-wing Party of the Democratic Revolution and nationalist elements in the PRI have all vowed to cooperate in staging a mass protest.

The campaign to privatize has become a de facto referendum on the direction of Mexico's economic development. Either the Fox government will succeed in finally burying the last and biggest remnants of Mexico's old nationalist development policy or it will suffer a defeat that may make it possible to recover a road toward national economic independence.

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