Energy Infrastructure
AMLO and Slim show united front, announce pipeline agreement
After months of tense negotiations, President López Obrador showed up flanked by business leaders on Tuesday to announce that the disputes over the pipelines of the Federal Electricity Commission are over.

After two months of tense negotiations, President Andrés Manuel López Obrador showed up flanked by business leaders on Tuesday to announce that the disputes over the pipelines of the Federal Electricity Commission, the State-owned energy company, are over. AMLO assured that with the modifications to the contracts, the power company will save up to 4,500 million dollars.

"Last night, an agreement that I consider very important and beneficial to the Nation was reached, because it will mean savings for the Public Treasury of around 4,500 million dollars, in general terms," ??the president said in his daily press conference from Palacio Nacional. By his side was Carlos Slim, Mexico's wealthiest businessman who led the negotiations with the rest of the companies.

Mexican economy grew 0% in the second quarter of 2019

López Obrador explained that the agreement included three of the four construction companies: Slim's Carso, IEnova, and TransCanada, while an agreement with Fermaca is still pending. "Legally, the contracts had already been signed, conditions that we considered harmful to the Government had already been agreed to, and that is why the owners of the companies were consulted so that, bypassing the legal commitments, an agreement was reached in benefit of all parties," the president said.

Carlos Slim was in charge of explaining the agreement to the media, after public praise from AMLO. Tuesday's conference came with an important message of unity between the president and the communications mogul. Their relationship was badly damaged after Slim's press conference in the middle of the election campaign, where he defended the construction of the Texcoco airport, a pet project of former Presidente Enrique Peña Nieto that AMLO ultimately discarded.

"It was very important that the Carso Group participated in this agreement. I must give credit to Carlos Slim, who was the first one to reach an agreement with the CFE. This set the tone for achieving subsequent agreements. The intervention of the business leaders was also very important," said López Obrador.

With this agreement, as an additional but very important issue, gas supply for the electric industry is guaranteed, so that we do not have blackouts for many years to come and for the promotion of the national industry, we will have enough gas in Mexico

Slim added that one of the main points of the original agreement was that the payments were increasing - initially the fees were low, and then ended up in very high amounts - and in the new accord the rates are fixed. According to Slim, this works in an environment where interest rates are going down in most central banks around the world, including Mexico.

The agreement also contemplates that, if the pipelines are not being used, they can be contracted to third parties to continue the generation of revenue, which will also benefit the CFE with 50% of the gross income "which can greatly improve the operation", he said.

The businessmen present recognized that the new agreement is a win-win for both parties and contributes to the improvement of CFE, while López Obrador said that the Government wins because it will get better rates that will allow him to fulfill his commitment not to increase energy prices.

"With this agreement, as an additional but very important issue, gas supply for the electric industry is guaranteed, so that we do not have blackouts for many years to come and for the promotion of the national industry, we will have enough gas in Mexico," the president said.

CFE director Manuel Bartlett explained that the pipeline will begin operations with 2.6 billion cubic feet per day and will carry gas to more than 14 power plants, covering 40% of the total in the Gulf of the country, "with clear possibilities of taking it to the Yucatan Peninsula". This region of the country is currently facing energy deficits, so Tuesday's announcement was well received.

The markets were afraid of this scenario because they knew that the dispute could take years to resolve in the courts and the chances of CFE winning were small.

AMLO on Tuesday celebrated the legal battle was avoided.

"It would have meant resorting to international courts and it would have taken several years and it was going to generate an atmosphere of distrust towards the Government and towards Mexico in moments when we need to have both national and foreign investment, so that greater economic growth is achieved," the president said.

"We are going after more investments"

With this agreement, Slim showed strong support for the AMLO administration. He acknowledged that the negotiations were cordial and thanked the president "for his personal participation and for dedicating the time to such an important matter." He also mentioned the support of Carlos Salazar, Antonio del Valle, and Bartlett.

"For our business, in our case, the establishing of a steady income over the term will allow us to make larger projects, greater investments, which I consider important. I think we are in the same conditions among the other companies in terms of the payments will be larger from the beginning and that will allow greater investments," he said.

"We are in a situation where [GDP] growth can be 0 or 0.8%. The important thing is that there has been no such investment and that it is imminent that we can start this year, there are projects that can begin to mature, which already have the basic engineering. I have great confidence," said Slim. " We will grow well and soon. There are potential and great possibilities for growth."

Slim was questioned on the airport project of Texcoco, but he evaded the matter by saying "that time will tell." He added: "It is just one of 1,600 projects, of course, it was a huge project, but there are still 1,600 infrastructure investment projects, so there is a large investment opportunity."

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