Mexico to buy 2 million tons of coal to burn in power plants

Mexico’s

state-owned electrical power company announced Tuesday it will buy 2 million metric tons of coal from Mexican producers to burn in power plants.

The announcement came as many countries are moving to reduce their use of coal -fired power plants amid declines in electricity demand due to the coronavirus pandemic.

But the administration of President Andrés Manuel López Obrador has shown a deep devotion to fossil fuels, and hostility to renewables. In May, the government announced rules making it harder to bring solar and wind power projects online.

Under Tuesday’s announcement, the Federal Electricity Commission — known as the CFE — will buy the coal between July and December 2021, to help the economy of coal producers in the northern border state of Coahuila.

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The commission said in a statement that coal-fired plants provide only 9.46% of Mexico’s electricity, “which puts the lie to press reports that the CFE is betting on dirty sources of energy.” Much of the fuel will apparently be used at back-up plants to meet peak demand.

In May, the federal government cited the coronavirus pandemic as a justification for new rules that will reduce the role of renewable energies like solar and wind power, granting a reprieve to the government’s own aging, oil-fired power plants .

Those role changes have been held up by court challenges, but would affect the ability of Mexican and foreign investors who had been allowed to sell their power into the government-operated grid. Industry associations said it will affect 28 solar and wind projects that were ready to go online, and 16 more under construction, with a total of $6.4 billion in investments, much of it from foreign firms.

The CFE will buy the coal from 75 small miners in Salina Coahuila. The purchase is expected to represent an economic revenue in the region worth approximately MXN $2,068,600, considering a purchase price of MXN 1,034.31 per ton.

The state-owned electrical power company said this multi-annual contract will allow reactivating coal mining in the northern state.

Nevertheless, Mines deputy secretary of the Economy Ministry Francisco Quiroga said that although the purchases will contribute to the reactivation of the region “it’s not a complete solution; it’s only a necessary contribution but not enough.”

The strategy of purchasing coal from producers in the coal region of Sabinas, Coahuila is base don the lack of production development in the area.

Last May 4, 2019, the president ordered the CFE to purchase coal in the long term under five principles: zero corruption, zero “coyotaje,” giving preference to small producers, honesty in the purchase of coal, and not land, and fair prices.

In order to make the purchase, the CFE will perform a direct award process to the 75 selected producers that met all the requirements.

Each producer will be awarded an allocation according to its coal -producing capacities.

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According to the rules established in the purchase scheme, the CFE will prioritize those who have less, that is, 38 micro and small producers will be allocated the 73.07% of the total purchases, which is equivalent to 1,461,367 tons.

19 medium producers will be allocated 16% of the total purchase that will be equally divided, that is, from 320,000 tons, each one will be able to sell the CFE 20,000 tons during the next 18 months.

Finally, 17 big producers will be allocated 10%, also equally divided, that is, from 218,633 tons, each will be able to sell the CFE 12,860 tons.

CFE to cancel three electric plants due to COVID-19

The CFE informed the companies registered at the hiring electronic system that it canceled the construction of the power plants at Baja California Sur VI, Salamanca, and San Luis Potosì due to the crisis and the effects caused by the COVID-19 pandemic.

The CFE said in three documents issued by the hiring área that “there are not the necessary conditions to continue with the development of the international open contests for these plants,” with no responsibility for the CFE, so it decided to cancel the hiring procedures.

The cancellation will also allow complying with the government’s no-debt policy in the country so as to optimize the economic resources, as added by the CFE.

The cancellation of the projects also implies there will not be an investment of MXN $23,504,400 million in a three-year period.

The power plants were designed to be constructed through the Financed Investment scheme (Pidiregas) through the greenfield model, which is the one done in an área with no constructions so that it is not necessary to demolish, refurbish, maintain, or adapt structures for the development of the new project.

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