Mexico’s energy landscape is set for a major transformation as President Claudia Sheinbaum’s government seeks to balance the power of state-controlled companies with the need for private investment. The challenge is immense, with Pemex, the state-owned oil giant, buckling under a $100bn debt, and the Federal Electricity Commission (CFE) plagued by years of underinvestment. Yet, the newly installed president is committed to achieving her ambitious target of generating 45% of Mexico’s electricity from renewable sources by 2030 – a significant jump from the current 24%.

A key component of Sheinbaum’s energy strategy, first mooted in July, is to increase the government's control over Pemex and CFE, reclassifying them as public companies rather than profit-driven entities. This shift, which has already passed Mexico’s Senate, will allow the government to prioritise national interests over profits. Energy Minister Luz Elena Gonzalez has stated that this move ensures the companies align with the government’s goals, but critics argue that increased state control could discourage private investment, particularly in electricity transmission. With private investors wary of new restrictions, the success of this reform hinges on Sheinbaum’s ability to reassure both local and international capital.

The government’s need for private funding is undeniable. Experts estimate that the shift towards renewables could cost as much as $50bn, far more than Mexico’s state-owned companies can manage alone. Alicia Barcena, Mexico’s Environment Minister, pointed out that the president remains open to private participation but insisted that previous public-private partnerships were “unfair” and skewed in favour of private corporations. In light of this, Sheinbaum’s administration is in the process of reviewing these ventures to ensure that the public sector benefits more equitably.

While Mexico’s broader economic constraints are significant—facing the widest budget deficit in nearly four decades—Sheinbaum remains focused on securing foreign and domestic investments for her energy transition plan. To mitigate the fiscal challenges, her administration has already slashed spending in other areas, including a reduction in Pemex’s exploration and production activities, saving the government over $1bn. The company will prioritise high-value projects, pushing some activities into 2025.

Meanwhile, the international markets are closely watching Mexico’s moves. For now, investors have responded positively to the energy reforms, betting that the government will continue to support Pemex’s recovery and help curb its crushing debt. Pemex bonds, previously considered high-risk, have rallied as Fitch Ratings and S&P Global reassessed their credit ratings. With state support now almost guaranteed, there is hope that Pemex could see its bonds rise to investment grade, although the company still faces significant operational challenges.

However, the state oil behemoth's struggles extend beyond debt. Its recent acquisition of the Deer Park refinery in Texas, initially seen as a bargain, has been plagued by operational issues, with deadly accidents and gas leaks raising questions about the refinery’s long-term viability. Critics fear that the growing accident rate at the 320,000 bpd facility, which has surged by over 400% since Pemex took over, could turn what was once viewed as a dream investment into a costly nightmare and PR disaster for the Mexican government.

As Sheinbaum’s government forges ahead with its energy reform, the road will be fraught with obstacles, from managing Pemex’s mammoth debt to securing enough funding for the renewable energy transition. The stakes could not be higher, not just for Mexico’s energy future but for its economic stability at large.