Privatization Behind Calderon's Attack on Electricians Union
A Spanish Company and National Action Party Members Hope to Exploit Luz y Fuerza's Fiber Optic Network
Mexican Electrical Workers Union (SME) Secretary General Martin Esparza claims that President Felipe Calderon busted his union in order to take control of a 1,100-kilometer fiber optic network. The fiber optic network in question was built with public money and was the property of Luz y Fuerza del Centro, the government-owned electricity company that the military and federal police shut down this past weekend. The union's opposition to Calderon's agenda of cronyism and privatization is at the heart of the dispute, according to Esparza.
In an interview with the Mexican weekly Proceso, Esparza explains how politicians from the president's National Action Party (PAN) facilitated a foreign company's exploitation of Luz y Fuerza's fiber optic cable, while simultaneously stifling Luz y Fuerza's bid for a permit to utilize its own infrastructure to provide television, internet, and telephone services.
Privatization Began Years Ago
The federal government's official explanation for why it sent the military and federal police to shut down all of Luz y Fuerza's buildings in the middle of the night on October 11 is that due to poor management, Luz y Fuerza was a money pit. The pro-government, anti-union media campaign justified the overnight firing of 44,000 electrical workers and 22,000 pensioners by blaming the SME, the union that represents the company's employees, for Luz y Fuerza's alleged financial precarity. A detail the anti-union propaganda machine conveniently omits is that government-appointed administrators--not the union--set company policy. Furthermore, Mexican presidents have been bleeding the country's government-owned electricity companies dry for years.
The North American Free Trade Agreement (NAFTA) architects had Mexico's energy industry in their sights when they negotiated the treaty. NAFTA's Chapter Six notes that "it is desirable to strengthen the important role that trade in energy and basic petrochemical goods plays in the free trade area and to enhance this role through sustained and gradual liberalization."
As such, in May 1993--just months before NAFTA went into effect--Mexican President Carlos Salinas de Gotari modified the federal Electricity Law to allow the importation and exportation of Mexico's electricity, and to allow private and foreign companies to build and operate electrical plants in Mexico. Thanks to Salinas' NAFTA-inspired reform, today dozens of foreign companies operate in Mexico's energy sector. According to former SME Secretary General Manuel Fernandez Flores, private companies currently produce almost 40% of Mexico's electricity. These private companies include Enron (now Tractebel), Bechtel, Applied Energy Services, General Electric, Westinghouse, Hyundai, Mitsubishi, Siemens, Iberdrola, and Union Fenosa.
SME: First Line of Defense Against Privatization
Every president that followed Salinas has attempted to further privatize Mexico's energy sector, but the SME has always halted their plans. According to David Bacon,
Ernesto Zedillo also proposed privatizing electricity in 1999. The union formed the National Front of Resistance to the Privatization of the Electrical Industry, collected 2.3 million signatures on petitions in three weeks, and brought a million angry capitalinos into the streets. Zedillo was defeated, the first time a privatization initiative in Mexico had not succeeded.
Zedillo's successor, Vicente Fox, proposed subsidizing the construction of privately owned electric plants with Mexicans' social security fund. He also proposed that users (that is, massive companies) be allowed to produce their own electricity or purchase their electricity through contracts with private plants. Under Fox's proposal, those who chose to "opt out" of paying for the government-owned electricity companies' services would still use the public transmission grid and distribution system, whose maintenance would be paid for by those users who didn't opt out of the public system. Again, the SME mobilized against Fox's proposal and successfully defeated it.
Calderon, having learned from his predecessors' mistakes, decided to take a different approach to privatization. First, his Secretary of Labor refused to recognize the SME's recently re-elected Secretary General, Martin Esparza . Then, with 6,000 federal troops and a middle-of-the-night executive order, Calderon made the SME legally disappear. In a country where the government controls most unions, Calderon busted one of Mexico's most democratic and militant labor organizations. In doing so, he dealt a severe blow to the Mexican energy industry's first line of defense against privatization: the SME.
The Fiber Optic Network
SME Secretary General Martin Esparza explained that Calderon busted his union because the SME was actively blocking a foreign company's attempt to take control of Luz y Fuerza's fiber optic network.
Fiber optic technology provides what is commonly known as the "triple play" package: television, telephone, and internet all on the same line. All that is required is the installation of fiber optic cable on any normal domestic or low-voltage electrical line--something any electric company has in spades.
Prior to its sudden shutdown, Luz y Fuerza served 6.2 million homes and businesses, or approximately 25 million people, in central Mexico. In other words, Luz y Fuerza served almost one-quarter of the entire Mexican population. Furthermore, the area that Luz y Fuerza served--central Mexico, which includes Mexico's financial and political base of operations, the Mexico City metropolitan area--produces approximately 35% of the country's Gross Domestic Product (GDP). This means that Luz y Fuerza's infrastructure, with some upgrading, has the potential to bring fiber optic services to almost a quarter of the country's population--a population that is key to Mexico's economy. Whoever holds the monopoly on Luz y Fuerza's infrastructure holds the key to a fortune.
Luz y Fuerza's electrical grid included 1,100 km of fiber optic cable that has already been installed, which represents coverage of approximately 1% of Mexico. The rest of the grid represents an enormous potential because fiber optic technology can be installed on it.
In 1999, at the end of President Zedillo's term, Mexico's Secretary of Communications and Transportation gave the Spanish company WL Comunicaciones a permit to install, operate, and commercialize Luz y Fuerza's network in order to provide fiber optic services. The nuts and bolts of the agreement were worked out during former president Vicente Fox's administration. Fox is a member of current president Felipe Calderon's National Action Party (PAN).
In an interview with Proceso, Esparza claims that neither the government, nor Luz y Fuerza executives, nor WL Comunicaciones brought the union to the table while the three parties hammered out the agreement to exploit Luz y Fuerza's fiber optic network.
In addition to the permit it received from the federal government, WL Comunicaciones signed multiple agreements with Luz y Fuerza executives during the Fox administration. Again, the SME leadership's signatures appear nowhere on the documents.
However, all of the agreements WL Comunicaciones signed with Luz y Fuerza are null and void. One such agreement set the rent WL Comunicaciones would have paid to Luz y Fuerza for the use of its electric poles at $170 pesos per pole per year. President Fox nulled this agreement when he passed a law mandating a $50 pesos per pole per year rent. Another agreement would have granted WL Comunicaciones the use of hundreds of kilometers of Luz y Fuerza's power lines. In exchange, WL Comunicaciones would have upgraded some of Luz y Fuerza's fiber optic network, but with the strict requirement that Luz y Fuerza only use the fiber optic network for internal use--not for providing services to customers. However, Luz y Fuerza says this agreement is also invalid because WL Comunicaciones did not hold up its end of the deal.
Considering that WL Comunicaciones and Luz y Fuerza did not have any valid agreement, this past June Esparza and Luz y Fuerza director Jorge Gutierrez Vera submitted an application on behalf of Luz y Fuerza and the SME for a permit to use Luz y Fuerza's existing 1,100 km fiber optic network to provide triple play service. With their application, they submitted a study that demonstrated that Luz y Fuerza had the capacity to operate the network.
The SME/Luz y Fuerza proposal did not propose locking out WL Comunicaciones from also providing triple play service through Luz y Fuerza's grid. The SME/Luz y Fuerza proposal only applies to the existing fiber optic network, which constitutes a fraction of Luz y Fuerza's infrastructure and fiber optic potential. The government could have approved the SME/Luz y Fuerza application and still allowed WL Comunicaciones to install and operate fiber optic cable in Luz y Fuerza's power lines that don't currently have it.
But there's a problem with the SME/Luz y Fuerza proposal: because Luz y Fuerza owns the infrastructure, and because the fiber optic cable is already installed and more or less ready to be used (some relatively minor upgrades are required), granting Luz y Fuerza the right to provide its customers with triple play service would have allowed Luz y Fuerza to provide television, internet, and telephone services to its customers for a very competitive price. This would have turned a government-owned electricity company into a serious competitor with telecommunications giants Telmex and Cablevision, both of whom came to dominate their respective markets due to years-long monopolies.
The Calderon administration did not want Luz y Fuerza to take even the tiniest bite out of WL Comunicaciones' control over Luz y Fuerza's fiber optic network. Luz y Fuerza's control over its own fiber optic network (even while opening up other parts of the grid to private sector development) would have set a dangerous precedent: Calderon announced this past May that he intends to open up 21,000 km of fiber optic cable owned by Mexico's other state electric company, the Federal Electricity Commission (CFE), to private bidders. If Luz y Fuerza presented a viable business proposal for operating its own fiber optic network at a lower cost to consumers, why couldn't the CFE, whose network is much more extensive, do the same?
So Calderon's Secretary of Communications and Transportation ignored the SME/Luz y Fuerza permit request in order to give WL Comunicaciones free reign over Luz y Fuerza's fiber optic network. But the plan hit a snag. Esparza says, "I told [President Calderon]: 'Do you want this [WL Comunicaciones deal] to go forward? Then give us our permit. If you don't give it to us, we won't let them in." The Secretary of Communications and Transportation continued to ignore the SME/Luz y Fuerza application, and Esparza kept his word. He gave the order to his union members to not let WL Comunicaciones employees onto Luz y Fuerza property to install fiber optic cable and operate the network. WL Comunicaciones has been trying to access Luz y Fuerza's network since May 2008; SME workers haven't let them touch it.
Calderon's middle-of-the-night raid on Luz y Fuerza and the subsequent lockout of SME workers highlights a glaring contradiction: If the federal government shut down Luz y Fuerza because it was insolvent, why did the government ignore a viable business proposal that could have turned Luz y Fuerza into a telecommunications powerhouse? Why did it sic almost 6,000 soldiers and federal police on unionized government workers, just to open up public infrastructure to a private Spanish company? Perhaps Calderon has gone to such extremes to defend WL Comunicaciones because three very prominent members of his political party, the PAN, have major stakes in the company:
- PAN member and former Secretary of Energy under the Fox administration, Fernando Canales Clariond, is a major shareholder;
- PAN member and former Secretary of Energy under the Fox administration, Ernesto Martens, is also a major shareholder; and
- Lawyer Diego Fernandez de Cevallos, currently one of the most influential and conservative politicians in the PAN (he's said to have hand-picked a significant number of Calderon's cabinet members), is WL Comunicaciones' legal representation in its fight with the SME over the fiber optic network.
Photo: SME Secretary General Martin Esparza addresses students and faculty at the National Autonomous University of Mexico (UNAM) on October 15. The SME supported UNAM students during their 1999-2000 strike, so Esparza asked students to support the SME now. Photo by Santiago Navarro Francisco.