Dos Republicas Coal Partnership’s Mexican Parent and Sister Companies’ Coal Supply Contract Cancelled by Mexican Government CFE
By: Ricardo E. Calderon, Eagle Pass Business Journal, Inc., Copyright 2020
In a stunning decision made by the Mexican Government’s Comision Federal de Electricidad (CFE) on June 19, 2020 as announced through its press release number41/2020 regarding Altos Hornos de Mexico (AHMSA) cancellation of its coal supply contract for the Jose Lopez Portillo (Carbon I) and Carbon II coal-generated electricity plants in Rio Escondido, Coahuila, Mexico, Dos Republicas Coal Partnership’s (DRCP) parent company, AHMSA of Monclova, Coahuila, Mexico, and its subsidiaries, including Corporativo Industrial Coahuila, S.A. (CICSA), Minera del Norte, S.A. (MINOSA), Mineria Carbonifera de Rio Escondido, S.A. (MICARE), and DRCP, stand to lose hundreds of millions of dollars and thousands of jobs for supplying coal to the two largest coal-generated electricity plants in Latin America, owned by the Mexican Government’s CFE in Rio Escondido, Coahuila, approximately 10 miles from the United States-Mexico border near Eagle Pass, Texas.
In the press release to the public, Mexican CFE Corporate Communications Director Luis Bravo Navarrette stated that legal impediments or issues, as well as constitutional matters and rules and regulations of CFE, gives rise to legitimate causes to cancel the coal supply contract of AHMSA and CICSA to these two coal-generated electricity plants in Rio Escondido, Coahuila.
Bravo Navarrette added that the legal dispositions of CFE and its subsidiaries foresee the cancellation of the contract between the parties when there are justified causes that impede the receipt of the total services or goods provided for in the contract.
Bravo Navarrette noted that both coal-generated electricity plants, Jose Lopez Portillo (Carbon I) and Carbon II, participate in the central electricity market of CFE. According to the rules of this market, the principal criteria is the price of production, which 80% of the cost is coal.
According to the contracts signed with CICSA, they were for a three year period during 2019-2021 in which CFE would purchase a total of 14.7 Million tons of coal. However, the contract did not take into consideration the cost of production for the two coal-generated electricity plants, which demand for electricity production within market the have been very low.
Consequently, the low demand for electricity in the market has caused a surplus supply of coal and has increased costs to CFE for storage of this surplus coal as well as the costs for storage and protection of the surplus coal from auto combustion due to its nature.
Bravo Navarrette added that the contract between CICSA and CFE requires for coal quality to burn 6,000 Kcal per kilo, but the actual coal being received by CFE from CICSA is burning 4,500 kcal per kilo, which is 44 percent less than required. Thus, the price of the CICSA coal is costing CFE more each month than stipulated in the contract.
Bravo Navarrette also noted that the median cost to produce every Megawatt per hour in the subject region by these two coal-generated electricity plants should be $875 Mexican Pesos, but at the price being paid to CICSA the actual cost to produce a Megawatt per hour is costing CFE approximately $1,129.89 Mexican Pesos, which is higher and restricts CFE the opportunity to compete in the Central Electricity Market.
Bravo Navarrette stated that CFE finds itself impeded from continuing to purchase the remaining balance of coal under the contract, which to continue to do so would mean an overpayment of price in the current world market of coal. In addition, the acquisition of a material (coal) that is not necessary to the two plants as well as its low-quality grade would contribute to CFE sustaining severe economic damages and injuries, said Bravo Navarrette.
CFE and its representatives have an obligation to guarantee the best and optimal conditions for the government according to the first and third paragraphs of Article 134 of the Constitution, resulting in the important necessity to conclude (terminate) with anticipation its contractual obligations, concluded Bravo Navarrette.
The potential consequences of this salient decision by the Mexican CFE to terminate AHMSA and its subsidiaries coal supply contract to the two coal-generated electricity plants in Rio Escondido, Coahuila is the loss of thousands of jobs in the State of Coahuila, Mexico and in Eagle Pass, Texas (DRCP) and hundreds of millions of dollars in revenues.
For Maverick Countians, this could possibly mean the potential shutdown of the controversial Eagle Pass Mine owned by AHMSA’s subsidiary, Dos Republicas Coal Partnership, located approximately 3.5 miles north of the Eagle Pass City Limits on FM 1588 (Thompson Road) and the loss of jobs in the community.
All of the coal produced at the controversial Eagle Pass Mine is shipped and exported by railroad from Eagle Pass to Rio Escondido, Coahuila, Mexico, where the coal is mixed with other coal to burn in the two coal-generated electricity plants known as Carbon I (Lopez Portillo) and Carbon II. These two coal plants have been in operation for over 30 plus years in Mexico without scrubbers and signaled by the U.S. Environmental Protection Agency (EPA) as major contributors of air pollution and visibility to the Big Bend National Park, the state of Texas, and southwestern and central United States.
The Eagle Pass Mine directly discharges its contaminated coal waste waters into Elm Creek and other creeks that directly discharge into the Rio Grande River about one and a half miles upstream of the City of Eagle Pass and City of Piedras Negras, Coahuila’s municipal potable water treatment plants. Both Eagle Pass and Piedras Negras sole source of potable water is the Rio Grande River, as well as all Texas-Mexico border communities downstream of Eagle Pass and Piedras Negras.
The City of Eagle Pass and Maverick County, as well as concerned ranchers, farmers, landowners, citizens, Pacuache Clan of the Coahuiltecan Indian Tribe of Texas, Maverick County Environmental and Public Health Association, Texas Sierra Club, Environmental Defense Fund, and others have been legally battling against the controversial Eagle Pass Mine owned by Dos Republicas Coal Partnership for over 29 years.
Currently, the City of Eagle Pass, Maverick County, Maverick County Environmental and Public Health Association, Pacuache Clan of the Coahuiltecan Indian Tribe of Texas, Texas Sierra Club, Environmental Defense Fund, and local farmers, ranchers, citizens, and others are embroiled in a legal trial against Dos Republicas Coal Partnership in the state District Court in Travis County, Texas in Austin for contaminating and polluting the creeks and Rio Grande River and the air of both the citizens of Eagle Pass, Maverick County, and the City of Piedras Negras, Coahuila, Mexico.
Opponents of the controversial Eagle Pass Mine, an open pit coal mine, have been valiantly and courageously fighting to protect the public health of over 60,000 Maverick Countians, over 250,000 Piedras Negras, Coahuila citizens, and all the millions of residents living on the Texas-Mexico border downstream of Eagle Pass, Texas and Piedras Negras, Coahuila, as well as against environmental injustice and racism.
Opponents and Dos Republicas Coal Partnership and its predecessor, Dos Republicas Coal Resources, have fought legal battles before the Texas Commission on Environmental Quality (TCEQ) and its predecessor, Texas Natural Resources and Conservation Commission (TNRCC), Railroad Commission of Texas, state District Court in Travis County, and the Texas Third Court of Appeals in Austin, the United States Army Corps of Engineers, and other state and federal agencies.
It is unknown as of press time what might happen to the controversial Eagle Pass Mine owned by Dos Republicas Coal Partnership arising from the cancellation of its Mexican parent and subsidiary companies’ coal supply contract with the Mexican government-owned CFE, but it does loses its main source of revenues from its sole customer for low-quality bituminous grade coal produced in Eagle Pass, Texas. I
It remains to be seen whether Dos Republicas Coal Partnership continues its operation of the controversial Eagle Pass Mine or possibly seeks a third-party buyer of its coal mining permits in Texas or shuts down its open surface coal mining operations in Maverick County.
One thing is certain, however, the cancellation of the coal supply contract by CFE is a major development for citizens of Eagle Pass and Piedras Negras, Coahuila.
