Private investment in Mexico’s energy sector will continue to flourish as leftist president-elect Andrés Manuel López Obrador prepares to take office next month, Actis’s Mexico director Nicolas Escallon told Infrastructure Investor.
The energy sector in Mexico has witnessed a revolution in the past few years since reforms opened the historically gated market to foreign investors, while also seeing a large rise in the country’s renewable energy capacity, and Escallon believes Obrador will maintain these changes.
“There is a massive need for investment in generation, transmission and distribution infrastructure,” he said. “It’s evident to all stakeholders in the system that leveraging private capital to help them achieve those goals and sustain that supply and demand is an excellent way for any government to achieve their goals. The government’s been very clear at all levels, saying ‘we support private capital and we respect contracts’. We see the [energy] opportunity as something [that’s here] to stay.”
Mexico this year became the location of Actis’s largest-ever deal – a $1.3 billion takeover of InterGen’s Mexican gas portfolio. It became the emerging markets manager’s third platform in the country, following previous investments in two renewables platforms, and Escallon expects both gas and renewables to continue to be key under the incoming government.
“We haven’t heard anything specific yet, we’ll hear more as the government comes in,” he stated. “I think decarbonising the energy matrix will continue to be an area of focus. Energy independence is also going to take a key area [of energy policy].”
Obrador was elected in July following a campaign promising to root out corruption. The Texcoco airport in Mexico City, a partially built project estimated to cost 285 billion pesos ($14 billion; €12.4 billion), became an area of focus and the site is now set to be scrapped after a referendum held last month. However, Escallon anticipates no similar action in the energy sector.
“Corruption has affected Mexico and Latin America for a long time; it is one of those things that has held back the whole region,” he explained. “Getting rid of corruption will be a boon. For us, the majority of our work has been conducted in open-tender processes with [state utility] CFE and we have some corporate PPAs. We don’t see any type of effects. If you create a more transparent institutional framework, that would be good for our business.”
Escallon expects further opportunities for Actis in Mexico via an opening up of transmission and distribution infrastructure to private players, with the traditional models being increasingly disrupted by renewables.