Canadian firms warn over Mexico energy policy at dawn of trade deal

As Mexico celebrated a new trade deal with the United States and Canada on July 1, a group of Canadian energy investors warned their government that Mexico could already be violating the agreement for failing to respect contracts.

In a letter to Canada's Deputy Prime Minister Chrystia Freeland, Finance Minister Bill Morneau, Foreign Minister Francois-Philippe Champagne and other officials, four companies voiced concern their Mexican investments were under threat and urged the government to press Mexico on the matter.

The letter, seen by Reuters, adds to evidence of frustration among investors over energy policy under the administration of President Andres Manuel Lopez Obrador just as Mexico is trying to revive its battered economy from the impact of coronavirus.

Canada, a longstanding ally of Mexico and one of the country's main sources of foreign direct investment (FDI), has already raised concerns about Lopez Obrador's energy policy.

Arguing that Mexico must carve out a bigger role for the state on energy policy and become more self-sufficient, Lopez Obrador says previous Mexican governments skewed the market in favor of private investors, pushing up prices for the public.

The president has sought to renegotiate billions of dollars worth of contracts to get better terms for taxpayers.

Foreign companies, which were granted more scope to invest in Mexico under a 2013-14 energy reform enacted by Lopez Obrador's predecessor, deny they have raised costs for the public. They say the government is not honoring existing deals.

In the letter, Canadian Solar Inc, Atco Ltd , Northland Power Inc and JCM Power cited decisions to suspend testing of new renewable energy plants and to limit development and operation of power stations as steps that could put their projects in Mexico in jeopardy.

Mexican tribunals have temporarily suspended some of the measures, pending a Supreme Court decision. However, disputes over a range of policy decisions on energy extend back well into last year and have fanned uncertainty among investors.

Northland Power spokesman David Timm confirmed the company signed the letter but declined further comment, saying discussions are ongoing with both governments.

Ryan Nearing, spokesman for International Trade Minister Mary Ng, who was also sent the letter, said Canadian companies have indicated they are concerned with recent measures taken by the Mexican government which affect their energy investments.

"Canada shares these concerns, as Canadian companies have invested close to $9 billion in the energy sector, including over $3.1 billion in renewable energy," Nearing said.

Ng raised this issue on May 29 with Mexican Economy Minister Graciela Marquez and two agreed to keep up dialogue on it, Nearing added. Canada's embassy in Mexico has also been actively engaged with Mexico's government on the matter, he said.

The other companies did not immediately respond to requests for comment, nor did Mexico's energy ministry.

The four companies have various investments in Mexico, including solar and hydroelectric power projects.

The letter, which was also addressed to Natural Resources Minister Seamus O'Regan and Environment Minister Jonathan Wilkinson, was dated July 1, the same day on which the trade accord known as the United States-Mexico-Canada Agreement (USMCA) came into force.

Mexico's actions risked breaching commitments under USMCA and other trade deals it had signed, the firms argued.

Six weeks previously, Canada and the European Union sent letters to the Mexican government to warn that its changes on energy policy could negatively affect billions of dollars in renewable power generation projects.

In their missive, the energy companies proposed discussing what diplomatic channels could be opened to ensure that the Mexican government upheld commitments to Canadian investors.

Over the past two decades, Canada has been the third-biggest source of foreign investment in Mexico, after the United States and Spain, according to Mexican government data.

Last year, total Canadian investment was worth more than $2.9 billion, or some 8.7% of the total, the figures show.