In Search of the Mexican Way – How to kick start competition in the electricity sector and achieve lower tariffs
This comment analyses the political economy aspects of the electricity market reform that has been proposed by recent changes to the Constitution in Mexico. It identifies the main political and economic barriers that could potentially prevent the reform from progressing. Although privatization is not being considered, Mexico is following closely the same deregulation-commercialization path to electricity market reform as has been implemented since the early 1990 in many developed countries. The danger is that the potential gains for the Mexican economy from electricity market deregulation will be delayed for many years if the reforms become trapped in a political impasse over electricity subsidies and commercializing Comision Federal de Electricidad (CFE). We propose an alternative route that takes into account the economic, political and social realities of Mexico, recognizing that our proposal is a ‘second best’ alternative, but one that increases the chances of success as compared to trying and ultimately failing to implement the ‘first best’ standard solution.