NCPA - National Center for Policy Analysis

Without Privatization, Brown-Outs In Mexico

April 5, 1999

In a country where the anniversary of the 1938 nationalization of its oil fields is a national holiday, energy privatization is a touchy subject in Mexico.

President Ernesto Zedillo argues that its state-owned electric power industry is urgently in need of privatization if it is to obtain the outside financing necessary to modernize and meet surging demand. But powerful labor unions and many politicians are saying no.

  • With demand for electricity in Mexico climbing an expected 7 percent for the next six years, failure to obtain the funds to modernize could be devastating to the economy and lead to brown-outs or black-outs, experts warn.
  • Zedillo says the industry must attract $25 billion in investments to expand power generation and distribution.
  • While Brazil and Argentina have allowed private investment in electricity for most of the decade, Mexico may have to modernize by taking funds from hospitals and public education if nervous foreign investors stand aside.
  • Public support for privatization has not been helped by a series of recent scandals surrounding the botched sale of government assets -- including accusations of cronyism and fraud in the sale of state-owned banks and a subsequent $65 billion bailout.

The government also paid billions to rescue a series of ill- planned private toll roads. And in February, after a series of zig-zags in the government's effort to sell the petrochemical industry, an auction for one important plant failed to attract a single bidder.

Source: Rick Wills, "Privatization Proposal Stirs Public Passions in Mexico," New York Times, April 3, 1999.


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