Mexican President Felipe Calderon on Sunday disbanded the public utility that supplies electricity to Mexico City and the surrounding area, citing a gaping budget hole that threatened service to 25 million consumers.
About 500 federal police seized the Mexico City offices of the electricity company Luz y Fuerza del Centro, hours before the government published a decree documenting severe financial and operational inefficiencies at the electricity provider.
Luz y Fuerza is a state-run company that services Mexico City and parts of four central states, but business decisions were largely dictated by a powerful labor union that was locked in a dispute with Calderon’s government. The 66,000-member union promised protests to resist the move in the coming days.
Public auditors said spending was increasingly outpacing sales at Luz y Fuerza. Costs between 2003 and last year ballooned to 433 billion pesos (US$32.5 billion) while sales were 236 billion pesos.
Luz y Fuerza “faced an unsustainable financial situation,” Calderon, who is struggling to control public spending to offset plunging oil revenues, said late on Sunday in a nationally televised address.
He said financing continued economic losses at the utility would otherwise require increasing electricity rates or taxes.
“That would be unfair particularly when our country is going through tough economic times,” he said.
The government said the company lost 32.5 percent of the energy it generated or bought to distribute to its customers and that more than half of its labor costs — 160 billion pesos out of 240 billion pesos — went toward pensions for 20,000 retired workers.
The Federal Electricity Commission, the state-run utility that provides electricity across the rest of the country, would take over to provide service to Luz y Fuerza customers, Interior Secretary Fernando Gomez-Mont said.
Labor Secretary Javier Lozano said the government would compensate all workers and guarantee workers’ pensions.
Mexican Union of Electricians leaders said they would fight the decision on constitutional grounds and promised street protests.
“We won’t let them privatize our company and let them deprive 66,000 families of their livelihood,” union president Martin Esparza told a crowd of about 10,000 people gathered at a monument to the Mexican Revolution.
Esparza, who has not been recognized as union leader by the government because of alleged irregularities during his re-election, then led demonstrators on a march through downtown Mexico City to interior department headquarters, where hundreds of riot-police stood guard.
Calderon said the government did not intend to privatize Luz y Fuerza. He instructed officials to rehire as many employees as possible and to provide job assistance to other workers. He said laid-off workers would on average receive 33 months of salary as compensation.
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