Veracruz LDC Bid Fails
Rebid for Tuxpan V
Altamira LNG Project Underway
Electricity Reform


Veracruz LDC Bid Fails

On October 3 2002 the Energy Regulatory Commission announced that none of the companies which purchased bid packages for the Veracruz local distribution company (LDC) natural gas distribution concession has submitted a proposal. Lately, LDCs have faced some significant stumbling blocks in moving their projects forward in Mexico.

The commission has granted 21 natural gas distribution permits since 1996. Veracruz is the first LDC to be bid in the last two years. Prior to Veracruz, the Tijuana LDC was the only other natural gas distribution project in which the bidding collapsed.

The main problem facing the Veracruz LDC was the purchase price of the Pemex gas infrastructure to be acquired by the winner. Apparently, potential bidders viewed the price as excessive. Based on the size of the market and the potential for the distribution of natural gas in Veracruz, the potential benefits were not sufficiently attractive.

The commission is reviewing the necessary changes to the pricing of the assets and is also reassessing the need to sell off the existing assets. A formal announcement is expected soon.

Rebid for Tuxpan V

On October 17 2002 the Federal Electricity Commission published the second offer for the construction, operation and maintenance of a power plant of between 431 megawatts and 527 megawatts for the so-called Tuxpan V project. The site will be located in Tres Estrellas, Tuxpan, Veracruz. The commission cancelled the first bidding process in June.

There is a major change in the new offer, which may have a significant positive impact not only on Tuxpan V, but also on future independent power producer (IPP) bids. Bidders for Tuxpan V will now have the choice either to provide their own natural gas supply, as in recent IPP bids, or have the commission provide it. The change is a response to investor concerns over natural gas supply, as well as problems observed by IPP bidders regarding an imbalance between fuel supply contracts and power purchase agreements.

Allowing IPP bidders the option either to undertake gas supply themselves or to place the burden on the commission is a new development. At the beginning of the IPP programme the commission assumed responsibility for fuel supply. As the IPP programme evolved, gas supply became the responsibility of IPP bidders. Although this flexibility appeared to work in projects located along Mexico's northern border, contracting fuel supply to a private entity or Pemex transferred certain risks that IPP developers have been unable to mitigate.

Altamira LNG Project Underway

On November 22 2002 the commission published preliminary bidding guidelines for the acquisition of liquefied natural gas (LNG) in the Altamira region, Tamaulipas. Interested parties were invited to submit comments in the 10 business days following its publication. After reviewing these comments the commission will publish the corresponding bid offer.

The purpose of the bid is to award a 15-year LNG supply contract for 500,000 cubic feet per day, in the Altamira region, through the development of an LNG regasification terminal and the infrastructure to provide the commission with the gas required. The winning bidder shall build, operate and maintain the LNG terminal.

The LNG infrastructure will facilitate the liquefaction of natural gas, its maritime transportation, a recipient terminal, and the transportation and delivery of natural gas at delivery points.

Electricity Reform

President Fox's proposal to amend the Mexican Constitution in order to allow further private participation in the power industry continues to be discussed by Congress. It is not clear whether the bill will be passed during this legislative session, which ends on December 15 2002.


For further information in this topic please contact Rogelio L√≥pez-Velarde at Lopez Velarde, Heftye, Abogados by telephone (+52 55 50 81 1424) or by fax (+52 55 50 81 1425) or by email ([email protected]).