(Bloomberg) -- President Andres Manuel Lopez Obrador's new law that prioritizes Mexico's state utility over private companies has hit its first major judicial hurdle two days after it was ratified, when a court granted a provisional suspension to at least two companies.
In the decision, which was handed to Eoliatec del Pacifico SAPI de CV and another unnamed company, the federal district court said the suspension should apply country-wide. Eoliatec del Pacifico is a wind farm partnership between divisions of France's Electricite de France and Japan's Mitsui & Co.
The ruling is a major setback for the president, who has sought to protect the embattled state utility Comision Federal de Electricidad from private competition. The law determines which producers have priority in distributing power, starting with state hydroelectric plants and other government facilities. Only then can private solar and wind farms be allowed to supply the network.
Read More: Mexico Passes Disputed Electricity Bill Favoring State Firm
Legal pushback was widely expected against the measure, even by members of Lopez Obrador's Morena party in congress. In February, Senate majority leader Ricardo Monreal told Bloomberg News that he was open to changes in the energy bill to avoid such lawsuits. In the end, the administration pressed ahead with no changes.
“Lopez Obrador probably expects that the Supreme Court will rule in favor of the law's constitutionality,” said Carlos Petersen, an analyst at Eurasia Group. “If this doesn't happen he will continue with his incremental strategy and probably consider changing the constitution, which will depend on the midterm results.”
The decision is only temporary while the case continues in district court. A spokesperson for CFE declined to comment on the decision and the president's press office didn't respond to a request for comment.
Twenty two companies filed for injunctions against the law, Javier Mijangos, one of the lawyers who represents them, said in an interview. The government has until March 18 to appeal the temporary stay, which the court could decide to uphold until the case is concluded, usually two or three years, or a tribunal may overturn the decision, Mijangos said. He said it was unusual for a suspension to be applied country-wide, and that there's a chance that broad application could be stricken in an appeals court.
“I think the courts are the only counterweight,” to the Lopez Obrador administration, he said.
This is not the first time Lopez Obrador has run into resistance. Earlier this year, measures introduced by the nation's Energy Ministry to protect state electricity generation -- which had already been halted in lower courts -- were annulled by Mexico's Supreme Court.
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