The financing of the Mexican electrical sector

This paper analyses the financial pattern of the Mexican electricity sector, its financial limits in both development and modernization of this strategic sector, and the main options for resolving this financing problem including the proposals of the president Fox government. Our allocation of risks and profitability analysis explain the present success in attracting private investments to expand both generation and transmission capacity through BLT and IPP projects. The financial limitation is nevertheless the low self-financing of Federal Electricity Commission (CFE) that will make it very difficult to obtain financing to fulfil BLT and IPP contract compromises and to invest large sums in the expansion and modernization of the electricity sector. The main options to resolve the financial problems of the Mexican electricity sector are: (1) the improvement of the present financial pattern, (2) the opening of generation and supply segments to private capital with the preservation of the vertically integrated state-owned utilities, and (3) the proposals of the President Fox economic transition team that consider the opening of generation and supply segments, the setting up of an independent state-owned company to operate both the electrical dispatching and a power pool, and, finally, the transformation of CFE into a holding of state-owned utilities of generation, distribution and transmission.