Mexico's CFE to Take Over Luz y Fuerza del Centro
Oct. 11 (Bloomberg) -- Comision Federal deElectricidad, Mexico’s largest state power company known asCFE, will take over Luz y Fuerza del Centro, the smallermoney-losing state power supplier, Interior MinisterFernando Gomez Mont said in a Mexico City press conference.
“This is a measure to preserve responsibly the fiscalresources of all Mexicans,” Gomez Mont said. Luz y Fuerzaprovides power to a metropolitan area of 20 million peopleand several states surrounding Mexico City, transmitting 30percent of the entire country’s electrical output.
President Felipe Calderon issued a decree todayordering the liquidation of Luz y Fuerza, according to anotice published in the nation’s official gazette. Localmedia outlets reported that federal police officers seizedthe power company headquarters and other facilities by 11p.m. yesterday.
Calderon is seeking to bolster Mexico’s fiscal positionamid negative outlooks on sovereign debt from Standard &Poor’s and Fitch Ratings.
The president is increasing taxes and closing threeministries, while also cutting some government spending. OnSept. 8, Calderon submitted to Congress tax law changesthat would generate 176 billion pesos ($13.2 billion) inadditional revenue next year and spending cuts of 218billion pesos.
Unsustainable Situation
The financial situation of Luz y Fuerza isunsustainable, Gomez Mont said. If Luz y Fuerza were leftto continue operating, the federal government would have totransfer about 300 billion pesos to the company by 2012.
Between 2003 and 2008, Luz y Fuerza generated sales of235.7 billion pesos, while costs reached 443.2 billionpesos, according to Calderon’s decree. By June of 2009 thecompany reported a loss of 30.6 percent of the power thatit distributed.
“Almost no other power company in the world shows apercentage of power loss registered by Luz y Fuerza,” thedecree shows.
Severance costs for the federal government could reach20 billion pesos, Finance Minister Agustin Carstens said atthe same press conference.
Pension Liabilities
The federal government will absorb the pensionliabilities from Luz y Fuerza, Labor Minister Javier Lozanosaid at the press conference. Mexico also anticipates itwill rehire “an undefined number” of Luz y Fuerza workers,Lozano said.
CFE and Luz y Fuerza are the only companies allowed tosell and distribute power in Mexico. Private companies areallowed to generate power and sell it to the state-owneddistributors or export the electricity.
Under the government decree, the Secretary of Energywill have three days to publish the legal conditions tostart liquidating Luz y Fuerza del Centro.
The Secretary General of the Mexican ElectriciansUnion (SME), Martin Esparza, met with Garza Mont and laterdispersed the hundreds of protesters in Mexico’s historiccenter. The union will congregate tomorrow at 5:30 a.m. torequest the support of Congress.
Several Mexican politicians pledged to challenge theconstitutionality of the move, saying the federalgovernment can’t dissolve a state-owned enterprise withoutcongressional approval. An opposition Party of theDemocratic Revolution congressman, Alejandro Encinas, saidhe and other legislators would prepare a constitutionalchallenge to reverse the decree, according to an e-mailedstatement.
Electricity workers marched Oct. 8 in the capital toprotest the alleged government intervention in the laborunion when labor authorities refused to recognize Esparzaafter a close election.
To contact the reporter on this story:Carlos M. Rodriguez in Mexico City at carlosmr@bloomberg.net.
Last Updated: October 11, 2009 20:14 EDTSource: Bloomberg
