ments; and ‘in kind’ replacement of supply, in the form of either natural gas from another
source at market prices or delivery of electricity. However, according to these authors, Pemex
appears to be leaning towards a third option: to provide for penalties that are equal to a per-
centage of the cost of the minimum take-or-pay level of the fuel that was not delivered, based
on the current fuel price. They see a potential mismatch problem with this approach. Penalties
equal to a percentage of gas commodity costs may be either more or less than the plant’s lost
capacity revenue resulting from a lack of fuel and failure to generate. The CFE, if willing,
could help solve this problem by curtailing the plant’s dispatch when it has insufficient fuel
supply. Exactly how IPPs will deal with their fuel price risk and how lenders will respond
through the terms of their loans are still being determined.
Future structure of the Mexican power industry^1
Since the Samalayuca II financing, one of the future contingencies that IPP project sponsors
and their bankers have kept in mind has been the possible eventual privatisation of the CFE.
If the CFE was privatised and the resulting successor entity had a credit standing less than
the CFE’s, a default would be triggered in most IPP loan agreements. Today, however, while
bankers do not ignore the possibility that the CFE could be privatised some day, it appears
to be unlikely, at least over the next few years. Since 1960 the Mexican constitution has
defined public electricity services as the sole responsibility of the state power utilities.
Therefore a major change such as the privatisation of the CFE would require a constitution-
al amendment, which would have to be approved by at least two thirds of Congress, and
would be opposed by labour unions and the two opposition parties, the Institutional
Revolutionary Party (PRI) and the Democratic Revolution Party (PRD), because of concerns
including possible job losses.
After he was elected President in July 2000 Vicente Fox took up the power sector reform
proposals put forward by his predecessor, Ernesto Zedillo, in February 1999 (described in the
Merida III case study in Chapter 8), but with the caveat that he would not sell any state-owned
electricity assets. Fox said that Mexico needed a competitive electricity market, grounded in
the most advanced technology, to meet the needs of its economy. He called for reforms that
would allow Mexico to guarantee its energy supply in the coming years with the greatest effi-
ciency and competitive prices. He was motivated by projections showing that Mexico’s
demand for electricity would grow at 6 per cent per year and that the country would need an
additional 28,000 MW of installed capacity by 2010. In response, the PRI and PRD argued
that there was no need to change the constitution, because under the Mexican IPP law of
1993, private companies already can generate electricity as IPPs, generate electric power for
industrial use and build cogeneration plants.
Rather than fight a difficult and possibly losing battle to privatise the CFE, Fox’s gov-
ernment has concentrated on efforts to make the IPP programme more attractive to develop-
ers. Its recent initiatives have included efforts to develop a private bilateral contract market
and a methodology for private plants to place excess power on the national grid at prices that
are competitive with those of the CFE’s power plants.
Lessons learned
The case studies on Samalayuca II, Merida III, Bajio, La Rosita I and II, and TEG I and II in
POWER PLANT