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Goldman Sachs says Mexico’s CFE owes them $400 million

Mexico City, Mexico — Goldman Sachs claims Mexico’s CFE is refusing to pay on outstanding debt of $400 million USD. The state production company argues that the merchants who initiated the deal in its subsidiary were not authorized to do so

The Goldman Sachs Group is facing a transaction that pits its operators against Mexico’s dominant power company, defended by President Andrés Manuel López Obrador. At stake is about $400 million that the Wall Street bank believes is owed to it for a natural gas transaction that spun out of control when a winter storm hit Texas in February.

The February storm that hit the central United States caused deep blackouts when ice formed on wind turbines and some oil pipelines froze, forcing oil and gas wells to shut down.

As energy suppliers and traders struggled to track fuel to meet their obligations, prices skyrocketed. The increase benefited companies that were on the right side of the transactions, but their ability to collect depends on what happens to gas suppliers, power generators and utility customers, some of whom have filed lawsuits due to price increases.

The cost of paying Goldman Sachs could ultimately come from the pockets of Mexican households, many of whom were left without power in the winter, not so much because of local failures, but because Texas authorities cut fuel exports when its own lightly regulated system failed.

At first glance, this was a routine natural gas contract. Goldman had struck a deal with CFE International, a branch of CFE. The investment bank’s obligations were tied to a monthly gasoline price index, while the CFE unit would be exposed to daily rates at certain centers, such as the Waha center in West Texas.

The daily price there was multiplied by almost 100 , while the monthly price was basically unchanged, which left the CFE subsidiary ‘hooked’ on an unusually large amount. But instead of the contract being resolved in favor of the Wall Street firm, the situation has turned into a bitter dispute.

The state-owned production company argued that the merchants who started the deal at its subsidiary were not authorized to do so with some having even left since then. According to a Bloomberg report, CFE also assured that it should not have to honor the contract due to the extreme and unpredictable price and claimed that Goldman did not achieve a “rock solid” contract because it did not obtain an explicit assent from the parent company as guarantor of the exchange, which undermined the bank’s ability to extract the money.

For Goldman, the dispute boils down to a contractual obligation that its counterpart is obligated to fulfill, even if the debt resulted from an unforeseen disaster. The bank also argued that such an exchange was carried out routinely between the two parties and that the subsidiary even stated in documentation that it had a guarantee from the parent company.

It is unclear how and when Goldman will be able to collect the money it insists it is owed, especially now that CFE has become a central part of the Mexican president’s campaign to reshape the national energy market.

Since his election in 2018, López Obrador has sought to reverse his predecessor’s energy reforms and has said he wants to make the CFE an economic leader. He has widely blamed private companies for raising large sums of money domestically in deals with corrupt officials and has had a particular problem with gas contracts that he claims unfairly benefited companies at the expense of the state-owned company.