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Round
II In this section, stakeholders in this electric sector reforms negotiation and the people, interests, options, and objective criteria, that constitute the elements of analysis for interest based negotiation will be individually identified and presented. [1]1. President Fox President Vicente Fox’s election was a significant world event because it signaled the end of more than seventy years during which a single party held the presidency of Mexico. Many Mexicans who voted him into office expected miraculous transformations to occur and put an end to everything they perceived to be wrong with the country and its government. This of course is an unrealistic expectation because the change that Mexicans want does not only require a healthy international economy conducive for badly needed economic growth (and which unfortunately does not exist at this time of world economic recession), but also deep attitude and value changes that will take many years. President Fox’s honeymoon with Mexican citizens and media was short lived because of the economic downturn. The President even went as far asking the media to not divorce itself from him.[2] With his political capital low, reducing the electricity subsidy was a tough decision to make. The outrage that followed the government decision made Fox publicly hesitate and request a revision of the electric rate increase that however was inevitable which possibly made him look less than presidential.[3] During his administration, Mexico’s President has been unsuccessful at getting a tax reform from congress to raise government revenues to implement the social programs he promised during his campaign. The President claims that limited government funds must be spent in social programs such as health and education. In his 2000 Energy Sectoral Plan (PSE), Fox refuses to privatize the energy sector but proposes to open to competition and private investment the generation and distribution of electricity.[4] President Fox has stated that the electricity sector would need investments of U.S. $ 5 billion a year during the next decades. He has stated that Foreign Direct Investment (FDI) is good if it promotes development, growth, and employment. The Mexican President has courted investors in Europe, Asia, and the U.S. Fox did not send an initiative to congress directly in 2000 to liberalize the energy sector and allow private investment. Senator Rodriguez sent a PAN initiative. The initiative did not pass and the President is expected to send a new initiative before April of 2002. The President has used a low-key media campaign to bring awareness to the public about the infrastructure and investment needs of the energy sector. The President needs to develop a better working relationship with congress and the media. Especially with his own party the PAN. Political coalitions and alliances are relatively new in the Mexican Congress so the recent efforts to form inter-party coalitions sometimes work and sometimes do not. Mexican legislators will have to learn parliamentary skills and learn how to compromise. If economic recovery does begin by the second semester of 2002, President Fox may still have time to maneuver his way back into public approval. This would give him a chance to get a friendlier congress in 2003 that would allow him to pursue his goals for the rest of his term. The electoral campaigns for the Federal Congress in 2003 have already begun. The electric sector will become the object of public contention once again, so prompt agreement on the issue is unlikely. It is however, very likely that all of the parties will stick to positional negotiation rather than interest based negotiations. In light of this issue, a strategy for pushing President Fox’s objectives will be discussed in part III of this paper. 2. PAN The PAN was the biggest winner of Mexico’s 2000 elections. Apart from the Presidency, the National Action Party now has 207 of the 500 deputies in the Congress, and 46 of the 128 Senatorial seats. Since it does not have a majority, the PAN must be build alliances with other parties to pass the bills it wants. There was an alliance with the Green Environmental Party of Mexico (PVEM) that won 8 deputy and 5 senatorial seats respectively in the 2000 elections. This alliance was short lived and the parties have broken ties since then. The PAN had an internal and uneventful leadership re-election this year. The party is not as close to the President as Fox would like it to be. Diego Fernandez one of the party leaders has had many differences with President Fox and has not been shy about criticizing him. The party legislators and the President sometimes speak with more than one voice and this is very debilitating for the party’s image. Diego Fernandez and Felipe Calderon leaders of the PAN in the Senate and Deputy chamber respectively, have recently defended the decision to increase electricity rates even if they are unpopular measures.[5] On December 4, 2001 the party submitted to the Senate a proposal to reform the electric sector. Deputy Juan C. Mourino, President of the energy commission in the Chamber of Deputies, summarizes the party’s proposal has the following goals[6]:
The PAN will have to negotiate a new alliance with legislators from other parties to get their bill passed to allow private investment and competition. The party has stated that it is not responsible for the critical state that the energy sector is in, but it accepts the responsibility of fixing it. 3. PRI The traditional PRI ideology required a strong paternal state that directed the economy for the benefit of the majorities in the country. This is relevant to our discussion because in 1982 the state had over 1150 parastatal companies and employed over 20% of the active labor force in the country.[7] Corporativism refers the incorporation of Trade Unions into the political party (PRI) structure. The PRI is made up of three broad sectors that are supposed to represent the Mexican society. The PRI managed to stay in power for over 70 years because of its ability to co-opt leaders and groups. The Confederacion Nacional Campesina (CNC) is supposed to represent Mexican agricultural workers. The Confederacion Nacional de Organizaciones Populares (CNOP) is supposed to represent some middle class interests, students, youth organizations, and poor people. The CTM is supposed to represent the workers of Mexico in the PRI The CTM, CNC, and CNOP, group a myriad of political organizations that are active supporters of the PRI. In return for their political support (members votes and financial contributions), the PRI gave them seats in Congress, other government jobs, contracts, concessions, etc. The PRI traditionally advocated strong populist platforms. This changed in 1982 with the presidential election of Miguel de la Madrid. De la Madrid and his successors Carlos Salinas and Ernesto Zedillo represented a new ideology in the party known as neo-liberalism. The neo-liberals advocated a smaller and more efficient state that should regulate a market driven economy. During the internal selection of the PRI’s 2000 presidential candidate there was a heated public power struggle between the traditional corporative factions of the PRI and the neo-liberals. After expensive and divisive campaigns the neo-liberals selected the PRI’s presidential candidate who lost the election to Vicente Fox in July of 2000. After losing the presidency the PRI still has 209 of the 500 Deputies and 60 of the country’s 128 Senators making it a formidable opposition party. However, there are still significant internal divisions and there are rumors that the PRI may fragment irreversibly after its 2002 internal leadership elections. [8] On August 27, 1999 the PRI presented a position paper on the privatization of the electric sector that echoed President Zedillo’s initiative.[9] The paper’s main points were:
In 1999, the PRI supported the full privatization of generation and distribution of electricity. It advocated the sale of some of the government’s generation infrastructure. After the 2000 elections the party’s rhetoric has changed quite a bit but there is now a new party position on the subject.[10] Various PRI Senators have made statements against privatization.[11] As an opposition party, the PRI profits from the failures of President Fox. The party is not only trying to remain united but also to recover the presidency it recently lost. The PRI is constantly criticizing President Fox in the media and stating that it has not kept any of its campaign promises. Blocking the efforts and initiatives of President Fox’s and the PAN is a logical and legitimate political strategy. However, some legislators from the PRI recognize the need of private investment in the sector. A compromise seemed therefore possible when the first draft of this paper was written and when a new party initiative was still due to come out.[12] The new party position was presented in the PRI initiative as presented by Senator Ernesto Gil on March 14, 2002.[13] It is relevant to note that the PRI’s new position as recently advocated by Senator Bartlett, swings back control of the economy to the State after previously advocating for privatization and market competition as stated in the 1999 Zedillo Initiative. This new PRI initiative allows no further private investment in the electric sector and advocates the reorganization of the CFE and LFC into one autonomous and efficient governmental corporation that should go out and conquer other international markets. [14] The PRI will also try to preserve and tighten its relationship with labor unions and parastatal employees. The PRI can wield its power effectively in congress and senate only if it can build strong coalitions with other parties. The tone of the new initiative makes it seem like the PRD and the PRI will form an alliance based on common positions. [15] 4. PRD The PRD was the biggest loser in the 2000 elections. It currently controls only 52 seats in the Deputies Chamber and 16 Senate seats. After the presidential debacle the party was strongly divided into at least two factions competing for the party leadership this year. The PRD represents the left of Mexico’s political spectrum. Its ideology advocates a strong state that controls the economy for the benefit of the masses. The party’s rhetoric is unmistakably socialist. The PRD has repeatedly stated its position on private investment in the electric sector and has recently introduced a bill initiative on the subject.[16] The proposal exemplifies the party’s position that can be summarized as follows:[17]
The PRD is the party that most adamantly opposes privatization and foreign direct investment. Since there is an electoral process for the party leadership, rhetoric is currently virulently high against the government, the PAN, The PRI, etc. None of the factions competing for the party leadership will admit any concessions. Senator Jesus Ortega, contender for the PRD presidency has gone as far as saying that if he were the party leader, the PRD would not form a single alliance or coalition with the other parties. This remains to bee seen since the multi-party composition of the Mexican Congress makes coalitions and alliances a political necessity. One of the political tools of choice used by the PRD is civil disobedience. The PRD continually utilizes massive marches and protests in downtown Mexico City continuously paralyzing traffic in the largest city in the world. In the past the PRD has formed coalitions with labor unions, and civil disobedience groups like “El Barzon” which is a large group of bank debtors that have been unable to make their loan payments losing their homes and property to banks. The PRD was especially virulent against the rescuing of the banks by President Zedillo. The PRD claims that the government is inflating the figures required for building the infrastructure that the electric sector requires, and that this is a government tactic to convince everyone that privatization is necessary when it is just an attempt to create private monopolies.[18] According to the PRD there is no energy crisis and CFE operates with healthy numbers. It states that due to the CFE’S great efficiency, Mexicans enjoy the world’s lowest electric rates. The PRD also insists that privatization of the electric sector has been unsuccessful in other countries like Argentina.[19] The PRD would certainly profit from the failure of the other political parties but if it wants to have a say in the making of policy it will have to actively seek coalitions and alliances. This may be complicated by the fact that the PRD’s internal party elections have been highly contentious and there is no clear winner yet. The PRD has also suffered from intense internal party divisions that may have been key in the poor performance of PRD candidates in the 2000 federal elections. 1. Unions: SUTERM & SME The Sole Union of Electricians of the Mexican Republic (SUTERM) is one of the corporative labor unions with deep ties to the PRI. The leader of the SUTERM is Mr. Leonardo Rodriguez who is also the leader of the CTM, the largest confederation of unions in Mexico. The power and legitimacy of the CTM and Mr. Rodriguez have been greatly reduced in recent years due to perceived sell-outs of the Unions leadership to the government and owners of capital, as well as because of the cloudy and undemocratic processes of electing the Union leadership. Having said this, it is important to establish an alliance with Mr. Rodriguez, the CTM and the SUTERM to guarantee the support of most of Mexico’s workers. Mr. Rodriguez was a ferocious critic of President Fox before his election but he has lowered his stance since then and even stated that he would like to be the President’s friend. The SUTERM leadership is also interested in regaining legitimacy with its members. The Union of Mexican Electricians is a more radical organization than the SUTERM. It is also smaller. Both unions have stated their opposition to the privatization of the electric sector in Mexico. They have tried to equate privatization with a defeat of workers in the social class struggle. They have denounced the government for trying to rob Mexicans of their energy patrimony and of surrendering national sovereignty to foreign powers.[20] The CFE and LFC employ 113,000 workers. Most of them are dues paying members of the SUTERM or the SME. Among their perks, workers of these companies do not pay for their private electric use. Because of Mexico’s labor laws, the CFE and LFC are obligated to pay for the retirement of their workers. The companies’ currently pension liabilities are over U.S. $10 billion. The Unions are interested in maintaining the labor rights and benefits of their members. One of the major concerns of the unions is that privatization would mean the loss of thousands of jobs, membership, and dues. If the CFE and LFC were forced to compete with private investors it is possible that more efficiency and productivity would be required of their employees. With the current system and laws, it is practically impossible for a union worker to lose his or her job. The Unions advise their members that privatization would mean a loss of jobs but makes no mention of the new jobs that would be available to experienced workers in the private sector if competition existed. Unions have the power of mobilizing large numbers of people. They can be very vocal and put together large and visible protests. They insist that CFE and LFC are capable of being self-sufficient if the government didn’t drain their revenues and divested the necessary investments in the industry. Even though the positions of Unions and that of allowing private investment may seem irreconcilable, much like those of the telephone union workers before the privatization of TELMEX, successful negotiations with the Unions are always a possibility.[21] 2. Private Sector & Foreign Investors Private investors look for the best return for their investments. They also consider the risks involved in investing in a country, and especially political or social risks. When they decide to invest in a country they also choose to invest to back the stability of the places where it invest. They seek safe investment zones, like Mexico. Mexico can use Foreign Direct Investments for developing its economy and spreading social welfare. If private investors build the infrastructure Mexico needs to meet the electricity demands of the coming years, the Mexican government could take what it had budgeted for those projects and spend it instead on other social programs like health and education. Investors, foreign and domestic seek safety for their investments. The security that investors look for includes the physical integrity of their assets as well as the safety and welfare of their personnel. If Mexico can promise macroeconomic stability to protect their money and physical security for their employees, it can better compete for that Foreign Direct Investment (FDI), with other countries that also want to receive that FDI. There is limited capital so not all countries will receive FDI. Mexico can use the FDI it receives, to pay for badly needed infrastructure. If investments are not made there will be blackouts and loss of international competitiveness. What do private investors see? CFE operates with a 10.71% loss and LFC with a 23.71% loss. The Average consumer has a yearly average of interrupted service of 165 minutes. CFE has 78,000 employees and produces 95% of Mexico’s electricity. LFC has 35,000 employees and produces 1% of Mexico’s energy. CFE employees are 95 times more productive than those of LFC. Investors would definitely try to figure out why this is the case and how to change it. Employee wages are three times the amount that is invested in infrastructure. CFE payroll accounts for 13.9% of its budget. LFC’S payroll is 92.3% of its budget.The average salary per worker of an LFC employee is U.S. $46, 914 and the corresponding one for CFE is U.S. $11, 586. Private investors will have to carefully analyze payroll costs before investing in the sector. CFE has pension liability commitments of US $7.5 billion while LFC has pension liabilities of US $3.8 billion. CFE has US $45.2 billion in long-term assets while LFC has US $5.4 billion. Are the companies in the same industry? In the year 2000 CFE had losses of US $1 billion but if you discounted the government subsidy from CFE income, then CFE would have incurred US $ 4.5 billion in losses. LFC’S income statement reflects US $1.9 billion in losses. In the business world loosing companies are eliminated and their assets liquidated. Losses of US $6.4 billion are big losses.[22] The government is interested in foreign investment. In order to attract investors, the Mexican government must create a stable economy and guaranteed physical integrity of their physical assets and personal safety for their employees. The government of Mexico must guarantee that it will NOT nationalize or expropriate the property of private investors just because it is profitable. Investors can get those guarantees from other countries. Private investors are interested in investing in the electricity generation and distribution market. There should be fair competition in that market. The government should not permit the formation of monopolies like the one TELMEX has because it would interfere against fair competition conditions for foreign investors. Mexico’s electric infrastructure requires U.S. $59 Billion. If Mexico changes its laws to allow private investment, the Mexican government may invest its limited funds in other areas like education and health. It’s a good business prospect. Private investors will probably spend some money in publicity and lobbying campaigns in Mexico to get public support for allowing private and foreign direct investment. Investors will attempt to help the President build the coalition he needs to reform the constitution. Investors will probably work with the government to create a media campaign about the seriousness of the risk of energy shortages and blackouts. They will probably make political contributions and serve as brokers with their legislator friends and associates across party lines. Mexican consumers must be reassured that they don’t stand to lose as much as they did in the TELMEX privatization or the FOBAPROA bank rescue. The government must not lie to them by saying that if they don’t open the sector to private investment their electric bills won’t go up because the subsidies can no longer be funded. It must explain why even if they don’t change their laws subsidies will have to be eliminated and electricity rates may have to increase as much as 300% according to Rosendo Flores of the SME.[23] [1] As presented in: Fisher, R. and Ury, W. “Getting to Yes” Penguin Books ISBN 0 14 01.5735 2 USA 1991 [2] Statement taken from an excerpt of a November 7, 2001 interview to President Fox by Journalist Pedro Ferriz de Con. www.presidencia.gob.mx/?Art=2095&Orden=Leer [3] Grupo Reforma. “Pospone Fox alza en tarifas de Luz.” 01/31/02 www.reforma.com/economiayfinanzas/articulo/165108 [4] Statement from a Presidential speech during the presentation of the Programa Sectorial de Energia 2001-2006 10/31/01 www.presidencia.gob.mx/?Art=2074&Orden=Leer [5] Lopez. M. “Defiende PAN decision de Fox sobre luz.” Reforma. Mexico. D.F. 02/01/02 www.reforma.com/nacional/articulo/165319 [6] Mourino. J. “Accion Nacional esta listo para resolver el problema structural del Sistema Electrico Mexicano.” Stenographical record #280129. Camara de Diputados. Mexico D.F. 01/30/02 http://gp.pan.org.mx/nuevo/documento.asp?id=280129 [7] Teichman, J. Privatization and Political Change in Mexico. University of Pittsburgh Press. Pittsburgh/London. Pp. 37-39. [8] Even though the PRI members recently elected Roberto Madrazo as their new party leader and there have been no significant desertions by sympathizers of his losing opponent Beatriz Paredes, a political ally of Francisco Labastida. [9] PRI. CEN. “Por un sector electrico eficiente y competitivo el PRI respalda la iniciativa Presidencial.” Mexico. D.F. 08/27/02 www.pri.org.mx/05.informacion/tex…ntos/1999/agosto99/sector_ele270899.html [10] Ramirez. C. “Preve Bartlett lucha contra privatizacion.” Reforma. Mexico. D.F. 03/14/02 www.reforma.com/nacional/nota/20020314/065094.htm [11] F. Herrera. “El gobierno que no da luz.” El Sol de Mexico. Mexico. D.F. 01/30/02. & Borrego. G. “Lo que esta detras del aumento a las tarifas electricas.” Imagen. Zacatecas. 02/12/02 [12] E-mail to the author from PRI Senator Carlos Rojas. contacto@carlosrojas.org.mx (Carlos Rojas) 02/14/02 [13] “Iniciativa de reformas en material de energia electrica.” Grupo Parlamentario del PRI en el Senado de la Republica. www.pri.senado.gob.mx/iniciativas/iniciativa13marzo2002ege.html [14] Ramirez, C. Ibid. [15] Roberto Madrazo won the PRI internal party leader election in a very close race against his opponent Beatriz Paredes. Madrazo recently appointed himself the sole speaker for the PRI in its negotiations with the government. This spurted reactions from Madrazo’s opponents who have made it clear that Madrazo is far from having the only voice and total control of the PRI. [16] Deputy Rosario Tapia introduced the bill on 02/13/02. www.prd.org [17]PRD. Grupo Parlamentario. “No a la privatizacion de la industria electrica nacional.” H. Congreso de la Union. Mexico. D.F. 02/10/02 http:prdleg.camara.gob.mx/cgi-bin/posicion/sectelec.pl [18] PRD. Grupo Parlamentario. “No a la privatizacion de la industria electrica nacional.” H. Congreso de la Union. Mexico. D.F. 02/10/02 http:prdleg.camara.gob.mx/cgi-bin/posicion/sectelec.pl [19] PRD. Ibid [20] Gonzalez. M. “Repudia SME alza a tarifas electricas.” Reforma. Mexico. D.F. 04/04/02 www.reforma.com/nacional/articulo/166131 [21] To successfully win over employees to the privatization, the government offered them loans from a development bank to purchase 4.4% of the company’s stock. Tandon. P. “Does Privatization Deliver?” Economic Development Institute. World Bank. Washington D.C.1994. P. 69 [22] Data was computed by the author using the data obtained from the income statements of both companies. These financial statements can be found at: www.lfc.gob.mx/resultados.htm and www.cfe.gob.mx/www2/finanzas/index.html [23] Gonzalez. M. “Repudia SME alza a tarifas electricas.” Reforma. Mexico. D.F. 04/04/02 www.reforma.com/nacional/articulo/166131 |