• New Contracting Model for Energy Transmission Lines in Mexico
  • October 16, 2017
  • On Sept. 18 2017, Mexico’s Ministry of Energy (SENER) announced the new contracting model for energy transmission lines. The new model will allow the implementation of tender processes for the award and execution of contracts for the management of electricity transmission (Contracts) with private parties in order for them to carry out, on behalf of the Mexican State, the financing, installation, maintenance, management, operation, and expansion of the required infrastructure for the provision of public transmission services. These tender processes are part of Mexico’s efforts to modernize its transmission infrastructure, anticipating increases in electricity generation and demand, with the assistance of the private sector. The announcement provided the following information about the new contracting model:

    The tenders will be organized by SENER which will enter into the Contracts with the winning bidder. The projects to be tendered include some of those in the Program for the Development of the National Electricity System (PRODESEN).

    • SENER is expected to select the projects to be tendered next month, with the first tender expected to be launched in November 2017 and conclude by July 2018.
    • There are two project options for the first tender: (a) the interconnection of Baja California with Sonora and (b) the interconnection of Tamaulipas with the United States. For a bidder to win a tender, it will have to offer the lowest net present value, guaranteeing the better social benefit and evidencing sufficient technical, operational, and financial capabilities.
    • SENER will not assume payment obligations for these projects and they will not have any credit support from the federal government. The proposals of the winning bidders in the tenders will be used to determine their annual contractual payments under the Contracts, which will be included by the Energy Regulatory Commission (CRE) as “regulated revenues” of the national transmission network’s public transmission service. The “regulated revenues” will be recovered with the average of the charges for the usage of the general grid incurred by the participants in the wholesale electricity market through the National Center for Energy Control (CENACE).The model Contracts make reference to a private trust (fideicomiso) where the winning bidder will act as the settlor and SENER as the trustee. The totality of the flows related to the project will be transferred to the trust, so that the trust will also serve as a guarantee mechanism for the payment to financing entities and suppliers; the project assets will also be transferred to the trust.
    • In addition, the winning bidders will execute agreements for the technical and commercial operation of the transmission (Agreements) with CENACE, where it will have, at all times, full operative control, and under which CENACE will invoice and charge to the different market participants the relevant charges for the transmission services to, subsequently, pay the contractor (winning bidder).
    • At the time the Contracts expire, title over the transmission line will be transferred to the Mexican State.

    It is estimated that from 2017 to 2024, Mexico will demand investments of MXN $ 205 billion (approximately USD $ 12 billion) related to the development of these types of projects.

    SENER is expected to organize a workshop in mid-October 2017 to discuss the new contracting model. Also, the Contract model has been made available by SENER in order to receive comments from the public. On the other hand, the Ixtepec-Yautepec project (i.e., the Oaxaca project) will not be conducted using the new contracting model, since it will be launched by the Federal Electricity Commission (CFE) through a different, independent scheme. That means that the new contracting model does not affect the rights of the CFE or any other transporters to launch other types of projects for the development of transmission lines under other schemes.