Hello! Rick,

This is for your information.   I will call you at 2:00 pm.  
Regards, Kikumi

 -----Original Message-----
From: 	Kishigami, Kikumi  
Sent:	Wednesday, October 03, 2001 8:03 PM
To:	Charvel, Ricardo
Subject:	FW: Working breakfast with Senator Genaro Borrego (PRI)

Hola! Ricardo,

Mira estos son los comentarios del Senador Genaro Borrego respecto a su porpuesta y modelo de reforma del sector el?ctrico. Los cuales se los voya enviar a Rick, pero antes de eso quisiera ver tus comentarios al respecto.

Saludos y que tengas buen viaje a M?xico.

Kikumi 

___________________________________________________________________________________________________________________________________________
Hello! Rick,

Last week I went to a working breakfast with Senator Genaro Borrego (PRI), where presented his proposal to reform the electric sector. 
In his speech he mentioned neither any political party nor the secretary of energy have a definitive model as up today. To solve this situation he has proposed to the other political parties to get together in order to reach a consensus and elaborate a proposal for Congress. So, when this proposal arrives to Congress, it will be quickly approved and will not have the same problems like the fiscal reform, that has not been approved yet. He wants a political reform that is viable.   

He started his speech with two questions:
1.- A reform? for what?
2.- Why do we need a reform?

His answers to the first question were:
- to ensure the electricity supply in the long term 
- Competitive tariffs for the industrial sector
- Socially equal residential tariffs. Residential tariffs have an important subsidy that has to be well allocated. Right now the Government is subsiding to whom more     consumes. And this year the total amount of subsidies has reached to $5 billion dollars. This amount has to decrease and be distributed in an appropriate way.

And for the second:
- The power sector requires a high level of investment, and the sector does not generate the sufficient resources.  Investment must be public and private.
- The lack of investment in the sector has resulted in a serious decline in operational capacity reserves.
- CFE performance is inadequate and needs to be an autonomous organism.
- The IPP and Pidiregas models have came to an end and they have left an enormous debt to the Government of Mexico. 
- The rapid electricity demand growth   

In 1999 President Ernesto Zedillo sent an initiative to Congress for the restructuring of the Electric Industry.  This initiative, which proposed the sale of assets was heavily opposed  by unions and left wing parties. The initiative requires a Constitutional amendment which has to be passed with a qualified majority of at least 66.6 % of the votes.  

Due to the background of this initiative and the actual composition of Congress, where non of the parties have the majority, his proposal and model is focused in making an amendment to law instead of Constitution. His proposal is based on art. 1 of the Public Service of Electric Power Law, where it mentions that "It corresponds exclusively to the nation, the generation, the transformation, the distribution and the supply of electric power that has for objective the benefit of the public service". So, the electric power which its goal is to be a productive input will not be considered as a public service. So, the electricity generated under this purpose will be opened and traded in an open market. 

Generation  	- 60% private sector and CFE?s subsidiary 	(CFE will establish a company where CFE will have the majority, 51%, 
   Wholesale market 							and the rest of the company's common, 49%, will be for sale to 													private investment). Its goal is to promote competition. This company, will be capitalized 										through the AFOREs (retirement money). In order to use these resources, it will be 										necessary to do some changes in the legal system.)
  
			- 40% public service.				To guarantee supply for residential and agriculture sectors.

In case of a failure of the market, CFE will back up the market, and will charge for it.	


Transmission:	All the participants of the market will pay a fee to CFE (decentralized) for using the network.  Transmission will remain in the 	hands of the state.
Distribution:		Unbundling and corporatizing distribution and setting up 13 regional distribution companies. These regional companies will have the same 				composition, 51% under the hands of the State and the rest will be opened to private sector. In the long term these companies will be 				concessions. The concession of these companies will happen after and if in the year 2003 the conditions within Congress are more favorable to send 			a Constitutional amendment.

CENACE will be responsible for the system operation (dispatch) as an autonomous public organism. To promote transparency and the correct incentives to the market.

He also mentioned that this model does not represent the final model of his party (PRI), because inside the same PRI there is specially one Senator, Manuel Barlett, whose ideas are totally opposed of looking into a reform in the energy sector.  


Thanks and regards,

Kikumi