VZCZCXRO9817
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2859/01 2671928
ZNR UUUUU ZZH
R 231928Z SEP 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 3350
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
INFO RUEHZA/ARA CENTRAL AMERICAN COLLECTIVE
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RHMFISS/DEPT OF HOMELAND SECURITY WASHINGTON DC

UNCLAS SECTION 01 OF 03 MEXICO 002859 
 
SIPDIS 
 
DEPT FOR DRL/AWH AND ILSCR, WHA/MEX, USDOL FOR ILAB 
 
E.O. 12958: N/A 
TAGS: ELAB ENRG PGOV SOCI ECON PINR MX
SUBJECT:  UNION AND NATIONAL ELECTIC COMPANY REACH AGEEMENT 
ON PENSION REFORM 
 
¶1.  Summary: Mexico,s state owned Federal Electricity 
Commission (CFE) and the Sole Union of the Electrical Workers 
of the Mexican Republic (SUTERM) recently signed a 
significant new agreement on pension reform.  The agreement 
will appreciably reduce the CFE,s mid to long term pension 
costs by raising employee contributions and increasing the 
age of retirement.  Mexican President Calderon praised the 
reform as an &historic8 agreement and it has been hailed in 
the press as example of responsible unionism.  However, it 
has been condemned by dissidents within the SUTERM and by the 
country,s other union electrical workers; the Mexican 
Electrical Workers Union (SME).  This reform will undoubtedly 
raise individual outlays for some union members but the 
SUTERM believes the agreement was necessary in order to 
responsibly control the upward spiral in pension cost and 
improve the CFE,s long-term financial stability.  Mexico is 
currently in the process of attempting to reform its energy 
sector with the main focus of this effort centered on the 
petroleum industry.  For its part the SUTERM would prefer 
that the electricity industry not be a part of the national 
energy debate.  This pension reform agreement, which the 
SUTERM claims was initiated by the union itself, could be 
viewed as attempt to show that it can function effectively 
without the need for privatization or some of the other 
measures being contemplated to reform the petroleum industry. 
 End Summary. 
 
 
 
THE NATIONAL ELECTRIC COMPANY AND ITS UNION 
------------------------------------------- 
 
¶2.  Over 97 percent of all electricity in Mexico is generated 
by the state owned Federal Electricity Commission (CFE). 
This electricity is both produced and distributed by an 
estimated 77,000 employees all of whom are represented by the 
larger of the country,s two electric energy unions, the Sole 
Union of the Electrical Workers of the Mexican Republic 
(SUTERM).  SUTERM workers operate in 27 of the country,s 31 
states.  The CFE and the SUTERM have traditionally had a 
cooperative management/labor relationship and have worked 
closely together on issues related to productivity and 
modernization.  Nevertheless, it should be noted that the 
SUTERM is formally linked to Mexico,s former ruling party, 
the PRI (Institutional Revolutionary Party).  The PRI is 
Mexico,s second largest opposition party.  The National 
Action Party (PAN) is now the party in power in Mexico and 
has been since 2000.  The PAN is now into its second 
consecutive six-year presidential administration. 
 
¶3.  To put the SUTERM and CFE in context, it is helpful to 
know that Mexico,s remaining states are serviced by the 
estimated 40,000 members the country,s other electric energy 
union, the Mexican Electrical Workers Union (SME).  SME 
members work for the government-owned Central Light and Power 
Company (LyFC), which distributes CFE generated electricity 
to some 24 million people in the Mexico City Federal District 
area and the larger part of four neighboring states.  The SME 
has informal, but nevertheless widely acknowledged, ties to 
Mexico,s current main opposition political party, the Party 
of the Democratic Revolution (PRD). 
 
 
THE NEED FOR PENSION REFORM 
--------------------------- 
 
¶4.  Until August 19 of this year the estimated 77,000 SUTERM 
members engaged by the CFE were all covered by a pension plan 
that had been fairly standard for workers employed by one of 
Mexico,s state-owned enterprises.  These pension/retirement 
plans allowed for very generous payment benefits, required 
little (if anything) in the way of worker co-payment 
contributions and often allowed for retirement after a 
relatively small number of years of service when compared to 
similar jobs in the private sector. Upon retirement SUTERM 
workers would be paid 100 percent of their base salary on top 
of whatever pension benefits they might be eligible for from 
Mexico,s national social security system (IMSS).  As a 
specific example of the benefits granted to SUTERM workers, 
prior to August 19 they were only required to contribute 
1.125 percent of their base salary for their own retirement. 
 
MEXICO 00002859  002 OF 003 
 
 
 
¶5.  The generous benefits paid to SUTERM members were high 
but still currently manageable.  The problem for the CFE and, 
as a consequence, for the SUTERM as well, was that a number 
of projections indicated that by the year 2015 
pension/retirement costs would start to become unmanageable 
and by 2030 these costs would represent a monumental 
financial burden for the Commission. According to one 
national newspaper the present retirement costs being paid by 
the CFE represent an additional 110 percent over and above 
the salary costs for current workers.  One estimate 
calculated that in the absence of any changes retirement 
benefits paid out by the CFE would exceed 251 percent of 
salary costs for current workers by the year 2030. 
 
 
SUTERM TO THE RESCUE 
-------------------- 
 
¶6.  The above-mentioned cost projections were well known to 
the GOM, the CFE and the SUTERM and none of them disputed the 
validity of these figures.  Consequently, labor, management 
and the broader GOM all agreed that the CFE needed to take 
corrective action or face financially destabilizing 
retirement costs in the relatively near term future.  Given 
this situation, Victor Fuentes, the national Secretary 
General of the SUTERM, told Mission Mexico,s Labor 
Counselor, that the union decided it was in its own best 
interest be proactive on the issue of pension reform. 
Consequently said Fuentes, the SUTERM then took the 
initiative and began negotiating with the CFE on possible 
reforms of the company,s pension system.  During the course 
of negotiations that lasted just over a year the SUTERM and 
the CFE slowly worked out the terms of what would ultimately 
be a significant pension reform agreement. 
 
¶7.  The terms of the agreement between the SUTERM and the CFE 
contain a number of important new elements that distinguish 
it from the system it will now replace.  One of the key items 
that enabled the SUTERM to sell the agreement to the union 
membership was a condition that the new retirement system 
would only apply to workers hired after August 19, 2008 and 
not to current employees or retirees.  The CFE hires 
approximately 1000 - 1500 new employees per year.  These new 
hires will be enrolled in a pension system that sets up 
individual retirement accounts that will be administered by 
an independent body.  The retirement age for new hires will 
be increased by five years over that of currently employed 
workers.  New hires will have to contribute 5 percent of 
their base salary toward their retirement (as compared to the 
1.125 for current employees mentioned above); the CFE will 
contribute 7.5 percent toward each workers, retirement. 
Over the course of the next ten years the costs of these 
contributions for the workers and CFE will increase to 6.5 
percent and 10 percent respectively. Both current employees 
and new hires will be able to receive 100 percent of whatever 
pension benefits they might be eligible for from Mexico,s 
national social security system (IMSS) of on top of their CFE 
provided retirement benefits. 
 
 
PRAISE AND CRITICISM FOR THE NEW SYSTEM 
--------------------------------------- 
 
¶8.  Mexican President Felipe Calderon hailed the new pension 
reform system negotiated between the SUTERM and the CFE as a 
historic agreement.  The agreement was broadly praised in the 
Mexican press which stated that this was the first time that 
a public service union willingly accepted an increase in the 
retirement age of its members; as opposed to having such an 
increase imposed upon them.  The most common descriptions of 
the agreement portrayed it as a remarkable example of 
responsible unionism.  The SUTERM was lauded almost 
everywhere and by almost everyone as a union capable of 
fairly balancing the interests of its members alongside those 
of the general Mexican public.  This widespread praise for 
the SUTERM notwithstanding, not everyone was pleased with the 
new pension reform agreement. 
 
 
¶9.  A spokesman for Mexico,s other electrical workers union, 
 
MEXICO 00002859  003 OF 003 
 
 
the SME, described the agreement as a dangerous step 
backwards in workers retirement rights.  The SME spokesman 
was extremely critical of the fact that new workers would 
have to pay more for their retirement benefits and he sharply 
criticized the idea of an independent body administering the 
individual retirement accounts of newly hired employees. 
According to the SME the phrase independent body was code for 
some form of private sector entity that would charge the 
workers for its services and seek to maximize its profits at 
the expense of the newly hired employees. 
Because of the SME,s informal links with the PRD it would 
probably be predisposed to uncritically accept any reform 
that had been praised by the PAN government of President 
Calderon. 
 
¶10.  The SME,s criticisms were echoed and fully shared by a 
dissident labor group among SUTERM members which calls itself 
the National Electrical Workers Coordination (CNE).  The CNE 
views itself as a part of the SUTERM and for the most part 
works to gain control of the union from within by winning 
internal unions elections.  Its success so far has been 
limited.  Nevertheless, the CNE is clearly the place where 
the more left leaning, PRD inclined; members of the SUTERM go 
to voice grievances without having to actually leave the 
union. 
 
 
COMMENT 
------- 
 
¶11.  Despite the criticisms of the SME and the dissidents 
within the SUTERM the general consensus in Mexico is that the 
reform agreement was a good thing.  Kudos aside, the SUTERM 
freely acknowledges that its decision to initiate reform 
discussion (assuming that that is in fact what happened) was 
mostly a case of acting in one,s own self interest.  Mexico 
is currently in the process of attempting to reform its 
energy sector and thus far the reform discussion has centered 
on the national petroleum company, Pemex.  Extensive public 
discussion has taken place involving political parties, the 
press, various and diverse elements of Mexican civil society 
and little if any of the participants in this national 
conversation have touched on the topic of Mexico,s 
electricity industry. 
 
¶12.  For its part the SUTERM would prefer that the energy 
debate remain focused on the Mexico,s petroleum.  Although 
there is no way to know for sure what direction the energy 
reform debate will take a real concern for many segments of 
Mexican society is that the question of some form of 
privatization will eventually be enacted.  The SUTERM 
believes that Mexico,s electricity sector can and is 
reforming itself without, what it sees as, the threat of 
privatization.  Viewed in that light, its efforts to prompt 
reform of the CFE,s pension system was every bit as much a 
political act as it was act to improve the national electric 
company,s long term financial stability. 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
GARZA