Analysis – Mexico’s presidential hopeful Sheinbaum expected to increase private investment in energy

FILE PHOTO: Claudia Sheinbaum waves alongside Mexico's President Andres Manuel Lopez Obrador on the day he hands over a ceremonial baton of command to Sheinbaum after she was elected by the ruling National Regeneration Movement (MORENA) as its candidate to succeed him in 2024 in the presidential election, in Mexico City, Mexico, September 7, 2023. REUTERS/Henry Romero/File Photo

Mexico’s likely next leader, front-runner Claudia Sheinbaum, is expected to adopt a more open stance toward private investment in the energy sector compared to her mentor, President Andres Manuel Lopez Obrador. This shift is envisioned to support Sheinbaum’s ambitious renewable energy initiatives amid constrained public finances. While Sheinbaum aligns with Lopez Obrador’s commitment to maintaining at least 54% of power generation under state control, her emphasis on renewables distinguishes her approach.

The contentious issue of state control over energy has been a focal point of Lopez Obrador’s agenda, and the strategy of the incoming administration is crucial for shaping Mexico’s economic trajectory. Although Sheinbaum shares common ground with Lopez Obrador on energy, her advocates suggest she may be more pragmatic in leveraging private capital due to factors such as budget limitations, escalating energy demand, and the imperative to avoid costly disputes witnessed during Lopez Obrador’s tenure.

Sheinbaum’s campaign has emphasized the significance of state control over 54% of power generation while indicating flexibility for both public and private investment. Although details of her energy plans remain scarce, insights gleaned from discussions with various sources suggest a more pragmatic approach under Sheinbaum’s leadership. Her awareness of the challenges, including budget constraints and the need to attract foreign investment for her renewables agenda, positions private investment as a vital component.

Despite Sheinbaum’s substantial lead in polls over her opposition, her allies recognize challenges stemming from Lopez Obrador’s policies, which have led to foreign firms’ hesitance to “nearshore” operations in Mexico. To address this, Sheinbaum’s team sees an opportunity to increase private investment, especially considering the potential for the state to control a significant portion of power generation by the end of Lopez Obrador’s term.

Sheinbaum, a distinguished expert in energy and climate change, aims to accelerate the transition to renewable energy sources, prioritizing environmental protection. Recent policy shifts, such as reducing Pemex’s tax burden, may offer Sheinbaum more financial flexibility without significant reliance on public funds.

Investor confidence, marred by disputes and clashes during Lopez Obrador’s tenure, is a key concern, and Sheinbaum’s private assurances to investors aim to restore a sense of legal certainty. While acknowledging the need for Mexico to evolve its energy policy, she emphasizes her commitment to combatting corruption and promoting equality.

As nearshoring gains momentum, the demand for energy infrastructure grows, prompting the recognition that public funds alone may be insufficient. Sheinbaum’s allies underscore the importance of devising schemes to attract private investment, considering its crucial role in supporting economic growth, social development, and fulfilling the energy demands associated with nearshoring. The upcoming election year in 2024 and the widening budget deficit are expected to fuel discussions on private investment in Mexico’s energy sector.

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