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Lloyd Mexico Economic Report - February 2002

Table of Contents

- Installed Capacity Rising Rapidly
- Combined Cycle Plants
- Cleaner Gas Technology
- Pricing Provides Opportunities
- Wind Power
- Solar Power
- Small Hydro Plants
- Power From Garbage
- Biomass Power



The installed capacity for electricity generation in Mexico now exceeds 40,000 megawatts (MW). Most (60.7%) of this total comes from oil- and with supplying commercial or public service needs such as street lighting, rather than domestic or industrial requirements.


About 95% of the 30,000 MW in new generating capacity, either currently under development or planned, is based on the combustion of fossil fuels. Most of the new power plants are highly efficient, gas-fired, “combined cycle” plants, which integrate gas and steam turbines, combining the advantages of both. They are relatively economical to build, on a “per megawatt of installed capacity” basis.


In order to limit the adverse effects associated with natural gas-fired plants, Pemex began introducing new technology in 1997 into several of its gas processing centers. The technology, part of Pemex’s 450 million dollar “Project Sulfur” campaign, significantly reduces sulfur dioxide emissions.

The system is already operational at three plants including the Cactus Gas Processing Center, in Chiapas, where, in October 2001, sulfur dioxide emissions had been reduced by 76.4%, compared with three years earlier.


Mexico is divided into 8 regions for billing purposes, with the price paid by consumers for electricity depending on the region, user, time of day and voltage. The average price paid for electricity varies from about 3 cents U.S. (per kilowatt-hour) in the agricultural sector to 6 cents for industrial and domestic users, 12 cents for public service and 14 cents for commercial users.

As a result, the best opportunities for alternative power sources, in terms of costs, lie gas-fired thermoelectric stations, followed by hydro (26.2%), coal (7.1%), nuclear (3.7%), geothermal (2.3%) and others (less than 0.1%).

The total installed capacity is growing rapidly. In 2001, 10 new power plants were inaugurated and, for the first time since 1995, the increase in capacity actually outpaced the increase in demand, augmenting the nation’s “reserves” for future growth.


The region of Mexico with most potential for wind power is undoubtedly the low-lying and flat Isthmus of Tehuantepec, in southern Mexico, where annual wind speeds, at a height of 30 meters above the ground (the height of a modern windmill), average more than 9 meters per second.

The first wind power demonstration project here was at La Venta, in 1994. This region may be too far from the U.S. to make any contribution to power exports, but wind power advocates claim that a major “wind farm” in the area could supply the domestic grid with up to 2,000 MW a year. Wind power projects already operating include those owned by the Federal Electricity Commission (CFE) at La Ventosa (Oaxaca) and Guerrero Negro (Baja California Sur) and a generator owned by Cementos Apasco at Ramos Arizpe (Coahuila).

The La Ventosa system has demonstrated an efficiency among the highest in the world. While all components for wind turbine systems could be manufactured in Mexico, there is no major domestic manufacturer of such equipment at present.

Windfarms cost about a million dollars for every MW of installed capacity; this is close to the current costs of building a combined-cycle, thermo-plant meeting Californian emissions standards.


In 1978, a Mexican-German project, Sonntlan, constructed a group of solar-powered houses in Las Barrancas, a fishing community in Baja California Sur. By 1990, researchers at the National University had designed and built the first 100%-Mexican, experimental solar plant. Most solar-power interest in Mexico is focused not on large-scale plants, but on small-scale photovoltaic (PV) systems suitable for providing electricity in remote rural areas.

About 5 million people (5% of the population) live in small or remote settlements not yet connected to the national electricity grid. More than 60,000 PV systems have been installed nationwide, benefiting 250,000 rural inhabitants.

There is also considerable interest in hybrid power projects combining wind turbines and PV systems with conventional diesel generators. Two of the larger hybrid pilot plants already operating are in Baja California Sur. The total installed capacity of PV systems is estimated at 12.9 MW.


Small-scale hydro-electric plants (each with a capacity less than 5 MW) are another environmentally friendly option. The National Energy Saving Commission (CONAE) believes that the potential exists for small hydro plants to generate a total of 3,200 MW nationwide.

The most promising locations for such plants are in the states of Puebla, Chiapas, Veracruz and Tabasco. Mexico has more than 100 years of experience in this field, with early hydro plants being built in rural zones and to power textile factories.

There are more than 80 mini-hydro
plants currently in operation, most of them managed by independent producers.


In the northern industrial city of Monterrey, plans have been approved for the construction of an electricity generating plant powered by gas generated from garbage. Similar plants already operate in Europe and Uruguay.

The plant, expected to cost 11 million dollars, will be run by Bioenergía de Nuevo León, a consortium of businesses from Mexico, Costa Rica and the U.K. The generator, expected to be brought into service next year, would be the largest of its kind in Latin America. The power plant will have a capacity of 7 MW, equivalent to 80% of the total energy used in lighting Monterrey’s streets.


The development of plants burning biomass such as post-processing sugar cane residues could supply up to 1,000 MW of electricity according to CONAE. The most favorable locations for such plants would be in the states of Michoacán and Guerrero.


Mexico attracted 24.5 billion dollars in direct foreign investment during 2001, more than any other country in Latin America, according to preliminary statistics from the Economic Commission for Latin America. Mexico’s success is due in large part to the advantageous conditions enjoyed by Mexican exporters as a result of the North American Free Trade Agreement.


The Center for Private Sector Economic Studies (CEESP) is confident that the economy will recover significantly this year after last year’s slowdown. CEESP expects Mexico's Gross Domestic Product (GDP) to grow 2% percent in 2002, compared to a fall of 0.3% in 2001.

The official government projection for GDP growth this year is 1.7%. CEESP is also more optimistic than the government about inflation. In 2001, inflation was 4.4%, its lowest figure for 33 years.

While the government’s goal for 2002 is 4.5%, CEESP believes that inflation will fall to 4.0% by year-end. The only official 2002 target that CEESP thinks will be difficult to meet is the goal of reducing the fiscal deficit to 0.69% of GDP.


Japanese electric components manufacturer Sumitomo Electric Industries (SEI) has announced plans to transfer its production of automobile cables from the U.S. to Mexico at the end of 2002 as part of a cost-cutting move. Production will focus on cables requiring significant inputs of manual labor, such as those cables used to connect automobile batteries to other equipment.


Grupo Financiero Bital, the nation’s fifth largest bank in terms of assets, is purchasing Banco del Atlantico, a smaller bank that it has managed on behalf of the government for the past four years. To help finance the purchase, Bital hopes to raise 300 million dollars by selling a minority stake to a group including General Electric Capital Corp. and ING Barings.

The combined bank will have more than 6 million accounts and assets of 18 billion dollars (164.98 billion pesos). A minority position in Bital is already held by two European banks: Spain's Banco Santander Central Hispano and Portugal's Banco Comercial Portugues.


The Inter-American Development Bank (IADB) has announced a one billion dollar loan to Mexico for programs to improve education and health care among lower-income workers in rural areas. The funds are part of an ambitious expansion of Progresa, the government’s Education, Health, and Nutrition Program. It is expected that about 4.75 billion dollars will be allocated to Progresa over the next six years. Last year, 2.5 million homes benefitted from participation in the program.


Construction is to begin this year of two major inter-state highway projects that should help to reduce Mexico City traffic congestion. The new highways will be of particular importance to truck traffic.

The first will link the Gulf coast town of Nautla (Veracruz) to the Pacific coast industrial port of Lázaro Cárdenas (Michoacán) by-passing the northern side of Mexico City. A second, (shorter) link south of the city will join Atlixco, in the state of Puebla, to the spa zone of Morelos, also keeping through traffic away from the city.

The latest project to improve traffic flow inside Mexico City is the construction of a 900 million dollar, six-lane, second tier above the busiest sections of two of the city’s most clogged arteries: the Anillo Periférico and the Viaducto Miguel Alemán. The 32 kilometers of construction is scheduled to begin in April and expected to take 5 years.

Mexico City authorities are reported to have set aside more than 190 million dollars to improve traffic flow this year, as well as an additional 87 million dollars for repairing roads and upgrading traffic lights. Some citizens’ groups claim the money would be better spent on improving the city’s public transportation network.


A small increase in minimum wages took effect January 1. The minimum wage is used as the basis for many rental and labor agreements as well as for calculating numerous other fees and charges, even including fines for traffic violations.

The minimum wage in Zone A (Mexico City, Baja California, Baja California Sur, Acapulco, several large border cities and parts of Veracruz) rose by 4.5% to 42.15 pesos a day.

In Zone B (Monterrey, Guadalajara, Tampico, Hermosillo and some other medium-sized cities) the daily rate has risen 5.7% to 40.10 pesos, and for Zone C (the remainder of the country) the rate has increased by 6.9% to 38.30 pesos. About 20% of Mexico's 40-million strong workforce receives the minimum salary.


According to the National Population Council (CONAPO), the nation’s population will reach 103 million by the end of this year. CONAPO bases its prediction on the difference between the likely death rate this year of 4.19 per 1,000, and the anticipated birth rate of 20.5 per thousand. The rate of population increase is leveling off.

The average Mexican woman now has only 2.27 children, fractionally more than the replacement rate. Health standards have been gradually improving and the infant mortality rate has now fallen to 23.2 for every 1,000 births. The life expectancy for Mexicans born this year has risen to 73.7 years for men and 78 years for women.

In its most recent report, CONAPO says that over 300,000 Mexicans will migrate to the U.S. in search of work this year. The report estimates that 8 million Mexicans now live in the U.S., with 90% of them opting to live in one of four states: California, Texas, Illinois or Arizona.


Two major Mexican corporations have recently announced plans to increase their presence in the U.S. market. Televisión Azteca, Mexico’s second largest broadcasting chain, has acquired 25% of the stock of two U.S.-based stations for 70 million dollars. Azteca already transmits programs in the U.S. through its subsidiary Azteca América.

Now, it also has a substantial interest in two channels owned by Pappas Telecasting: KTNC-TV Channel 42 (San Francisco), and KAZH-TV Channel 57 (Houston). Meanwhile, Grupo Modelo, one of Mexico’s leading brewers (whose brands include Corona, Pacífico, Negro Modelo), is building a 64-milliondollar brewery in the U.S., its first north of the border. Located in Idaho Falls, Idaho, the new plant will enable Modelo to substantially increase its presence in the U.S. market. Modelo has 8 breweries in Mexico with a combined installed capacity of 46 million hectoliters a year. Its Corona brand has led the sales of imported beers in the U.S. since 1997.

The text of this report was not submitted to any Federal Mexican Authorities or approved by them prior to publication. In preparing it, we have done our own research, using sources we believe to be reliable. However, we do not guarantee its accuracy. Neither the information contained herein nor the opinions expressed, constitute a solicitation by us of the purchase of any security.

Mirrored with permission from Lloyd S.A. de C.V.
See their Page on Mexico Connect.

© 2002 Operadora de Fondos Lloyd, S.A.
© 2002 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2006
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