Electricity Theft in Mexico Surges, Draining Supplies

Newsstand owner Miguel Angel Aguayo pays an electricity bill that any Californian would envy: $1 a month.

Aguayo gets his electricity for next to nothing because he steals it, with impunity. Like hundreds of thousands of other consumers and businesses large and small, Aguayo has a diablito, or little devil, an illegal device that connects his kiosk on the main drag of Paseo de la Reforma to overhead power lines. The $1 is what he pays an inspector to look the other way.

“Others pay him $3 or $5, but he lets me by with $1 because I don’t use much,” Aguayo said.

Robos de luz, or light thefts, are a time-honored tradition in Latin America, reflecting grinding poverty and ingrained corruption. But although the practice is declining in many Latin countries where government-owned power monopolies are being privatized, rip-offs in Mexico’s government-controlled utilities are on the rise. The situation is especially out of hand at the capital’s Central Light & Power, known by its Spanish initials LFC, whose rate of power loss is among the hemisphere’s largest, rivaling that of Colombia, Bolivia and the Dominican Republic.

Thefts plus crumbling infrastructure annually cost the municipal utility between $700 million and $1 billion, about 25% of the value of the power generated for its 18 million customers. In contrast, average utility loss through theft and technical failures in the United States is around 4%. Thefts and the enormous subsidies paid to the poor and farmers were the main reasons the Federal Electricity Commission (CFE), a government-owned utility that serves the rest of Mexico outside the capital, was $4 billion in debt last year.

The amount of the losses are estimates because the Mexican government keeps the figures a secret. Almost no one wants to talk about the thefts because it is such a touchy political subject. Many government officials have resigned themselves to diablitos as an inescapable social cost in a nation where half the working population lives on wages of $8 or less a day. CFE chief Alfredo Elias Ayub initially agreed to an interview but didn’t return two weeks of telephone calls. LFC officials declined outright.

But there are signs that Mexico may soon be forced to take a tougher stand, though the reason has less to do with the occasional power brown-out, surge and other symptoms of deteriorating service than the increasingly dire condition of the nation’s finances. This summer, President Vicente Fox is set to send Congress a sweeping electricity reform package that is expected to take a harder line against power waste and giveaways to force industry to become more competitive and efficient.

“We have to confront these losses with a firm hand. I do not believe they are inevitable. We no longer have the capacity to sustain these kinds of losses,” said Juan Camilo Mourino, a Mexican congressman and chairman of the Chamber of Deputies’ energy commission spearheading the legislation. He also is a member of Fox’s National Action Party.

Fox’s plan, Mourino said, would not privatize the federal utility but split it up into a dozen or more geographic entities that would compete for wholesale power and be held accountable for operating losses. The proposed changes also would open the door for private companies to own and operate a wave of new plants, injecting a free-market solution to the looming electricity supply woes.

In the next decade, Mexico needs to increase its current generation capacity of 35,000 megawatts by 75% to accommodate growth and modernization, an expansion that will cost about $49 billion, according to the Center for Economic Teaching and Research, a Mexico City think tank. That’s about four-fifths the power that California uses on a warm day.

Although Mexico is not facing a power crisis like California and Brazil, it could see one in three to four years, analysts say, unless it rapidly adds more power plants and transmission wires. The annual growth rate in Mexican power consumption is 5%, 2 1/2 times the U.S. rate.

The Fox plan will almost certainly seek to reduce the $5 billion Mexico pays each year to subsidize the power bought by residents and farmers. The average residential consumer pays 44 cents for every dollar spent to deliver electricity, while farmers pay only 31 cents, according to Juan Rosellon, an economics professor here.

It’s not just the poor street vendors of Mexico City who steal. Residents of wealthy neighborhoods in Monterrey were found to be principal culprits in a recent sweep in that industrial city. Inspectors found 17% of all light customers using diablitos.

“It’s a regressive subsidy because the rich benefit more than the poor, since they are the biggest users of power,” Rosellon said. Thefts and subsidies leave the utilities with little capital to invest in infrastructure, he added.

The kickbacks that Aguayo and other pirates make to LFC employees--almost all of whom are members of the powerful Mexican Electricians Union--are “kicked back up the line to supervisors and beyond,” said an international power analyst who tracks the Mexican industry and who asked that his name not be used.

Union spokesman Francisco Lopez acknowledged that diablitos are widespread and that his members sometimes allow them.

“The union and the company are trying to regularize the situation,” Lopez said. “But it is very hard to impede the use of diablitos. The people become very aggressive when we try to cut them off.”

Lopez disputed analysts’ estimates that 16% of power generated nationwide is stolen or wasted, saying it was about half that amount. Thefts are concentrated in outlying shanty towns and in Mexico City’s vast informal economy of sidewalk vendors, including people like Aguayo with scarce recourse, he said.

For Aguayo, who barely scrapes by selling magazines and newspapers, it’s simply the way it’s done in Mexico City. On his block, a shoeshine stand, an orange juice seller and lottery ticket vendor openly use diablitos.

He says he once had legitimate service, including a light meter that cost $30 to install and monthly payments of about $8. But he had it disconnected because it cost too much. A year later, a light company worker offered to install the diablito for $5 and Aguayo accepted.

“I pay a lot less and it works fine,” Aguayo said. “Either way, the blackouts still come.”

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