By Dave Graham
MEXICO CITY (Reuters) -Canada's ATCO Ltd has agreed to transfer ownership to Mexico of an unfinished pipeline bogged down in a dispute with the Mexican state power company, two officials told Reuters, marking a rare breakthrough in ongoing tensions over energy.
Reuters in October reported that Mexican power utility Comision Federal de Electricidad (CFE) in 2021 had to pay ATCO about $100 million in damages, interest and legal fees over the Ramal Tula natural gas pipeline in the central state of Hidalgo.
The deal to hand over the pipeline will free ATCO from attendant liabilities and gives Mexican President Andres Manuel Lopez Obrador the chance to finish the stalled project which was designed to supply natural gas to a power station north of Mexico City, the sources said.
Three people familiar with the matter said agreement to hand over the project was reached after Lopez Obrador met in January with Canadian Prime Minister Justin Trudeau, who used their talks to raise Canadian energy firms' concerns in Mexico.
Lopez Obrador afterward met representatives from Canadian energy companies, including ATCO, and details of the transfer were concluded in late February, one of the sources said. No fee was involved in the transfer, two of the sources said.
The mutually beneficial agreement contrasts with unresolved dispute settlement talks centering on Lopez Obrador's energy policies that have pitted the U.S. and Canada against Mexico.
ATCO said it was not disclosing the terms of the agreement.
"Together with the CFE, we agreed that this was the best path to see the project completed," the company said in a statement. "ATCO continues to be committed to Mexico and its communities and will continue to own and operate its current power generation assets and modular structures business."
Neither CFE, the Canadian government or Lopez Obrador's office replied to requests for comment.
Arguing that past governments skewed Mexico's energy market in favor of private capital, Lopez Obrador has taken a series of steps to bolster state control of the sector.
However, U.S. and Canadian companies argue his measures put them at a disadvantage, and are in breach of a North American trade deal. Last July the U.S. and Canadian governments launched formal dispute resolution talks with Mexico over energy.
ATCO went to arbitration because after Lopez Obrador took power in 2018, CFE canceled a contract the Calgary-based company made with the last administration to build the pipeline, on the grounds that the work was incomplete, Reuters reported.
By then, ATCO had already finished most of the 17 kilometer (11 mile) pipeline. But the company said it could not complete the final stretch due to resistance by local communities, and therefore invoked force majeure.
The company argued Mexico had not done enough to enable the pipeline's completion, and the London Court of International Arbitration agreed, Reuters reported. Mexico paid up in December 2021, according to people familiar with the matter.
Mexico's prior government initially valued the Ramal Tula project at $66 million when the contract was awarded in 2014.