Mexican CFE must pay Canada $85 million in arbitration case: sources

FILE PHOTO: The logo of Mexico's state electricity company known as the Federal Electricity Commission (CFE), is seen at the office of its building in Monterrey, Mexico November 5, 2019. REUTERS/Daniel Becerril/File Photo
FILE PHOTO: The logo of Mexico’s state electricity company known as the Federal Electricity Commission (CFE), is seen at the office of its building in Monterrey, Mexico November 5, 2019. REUTERS/Daniel Becerril/File Photo

By Dave Graham and Stefanie Eschenbach

MEXICO CITY, Oct 3 (Reuters) – The Mexican state-owned Comision Federal de Electricidad (CFE) last year lost an international arbitration case against the Canadian ATCO Ltd and had to pay compensation of some 85 million dollars, according to three people familiar with the matter.

Although it is a gas pipeline whose construction was contracted by the previous government, the case shows the type of compensation that Mexico could have to pay in disputes in which the current government is involved in controversial measures to strengthen state control of the energy market. .

The London Court of International Arbitration made the award in ATCO’s favor in October 2021, the sources said. After legal fees and interest were added, the sum amounted to about 100 million dollars, which the CFE paid to ATCO in December, they added.

ATCO could not comment because its contractual relations with the CFE are confidential, a company spokesman said, adding that it remained committed to seeking low-emission and efficient energy solutions in Mexico. The court declined to comment and CFE did not respond to requests for comment. The firm pursued arbitration because after President Andrés Manuel López Obrador took office in 2018, the CFE canceled a contract signed with the Canadian firm in the last administration to build a gas pipeline near the central city of Tula on the grounds that the work was incomplete, the sources said.

ATCO had already built most of the 17-kilometre Ramal Tula gas pipeline, which was to supply a power plant. But the company said it could not finish the final stretch due to resistance from local communities, so it invoked force majeure.

The Canadian company argued that Mexico had not done enough to allow it to complete the pipeline and the court agreed with it, the sources said. The project had been initially estimated by Mexico as an investment of 66 million dollars when it was awarded in 2014.

López Obrador has changed the law to strengthen the position of the CFE and state oil company Pemex at the expense of other independent operators, arguing that previous governments skewed the market in favor of private capital.

Still, in July, the US Trade Representative’s office requested dispute resolution talks with Mexico over billions of dollars in energy investments, arguing that López Obrador’s policies violated the North American Trade Agreement (TMEC). ).

Canada quickly joined the US complaint, which officials are working to resolve.

The CFE said in its 2021 annual report that it was facing 21 international arbitration cases and had significantly increased its reserves for litigation and lawsuits.

However, there have been signs that Mexico is finding ways to overcome some disputes.

In August, the Canadian company TC Energy said it had closed a deal with the CFE to build a $4.5 billion gas pipeline in southeastern Mexico.

In the announcement, TC Energy said the two sides had agreed to “mutually end” international arbitration related to other pipelines the Canadian company was building in Mexico.

(Reporting by Dave Graham and Stefanie Eschenbacher; additional reporting by Nia Williams in Calgary; translated by Adriana Barrera)

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