Mexican President Andres Manuel Lopez Obrador’s hardball tactics against foreign energy companies are halting projects and reversing a process that until recently made the country one of the world’s hottest oil and renewable markets.

About 200 wind farms, natural gas plants, solar arrays and other projects have been stalled, according to government documents, after Lopez Obrador ordered a halt to permitting, exacerbating what was already a lengthy bureaucratic process. Renewable giant Iberdrola SA has postponed new investments in Mexico while AES Corp. put off a deal for a $400 million wind farm because of permitting issues, according to three people familiar with the matter.

In oil and gas—an industry already hobbled by supply gluts, weak prices and an accelerating transition away from fossil fuels—auctions for deepwater-drilling licenses have been suspended since AMLO, as the president is known, took power at the end of 2018. Meanwhile, one of Mexico’s biggest private oil discoveries is in limbo amid protracted ownership talks between the driller and state-controlled Pemex.

At the center of Mexico’s policy U-turn is AMLO’s energy nationalism, which aims to give priority to the country’s embattled state-run companies at the expense of private operators. The president has repeatedly said he is considering changing the constitution to reverse the country’s opening to foreign investors, a historic step taken in 2014 under the previous administration that ended more than 75 years of state monopoly in the energy sector.

AMLO’s “clear goal is to change the rules of the game so that the state once again has the upper hand and can dictate the terms on which private money comes into the system,” said Duncan Wood, director of the Wilson Center’s Mexico Institute. “Everything points to the fact that he wants to close the system again.”

‘Huge Blow’

The cancellations and stalled investments are squeezing Mexicans who were counting on such projects for jobs and growth as the economy faces its biggest contraction in almost a century. When the government utility refused to supply gas for Iberdrola’s planned $1.2 billion power station in Tuxpan, the port city in eastern Mexico suffered a “huge blow,” said Mayor Juan Antonio Aguilar Mancha.

“This was an important investment that was going to generate more than 2,000 jobs, that was going to breathe new life into our region, our city,” said Aguilar Mancha, a member of the opposition conservative party PAN.

Two years into his government, AMLO’s anti-business strategy for the energy industry contrasts with his conservative approach to much of the government’s economic policy, from tightening the budget to supporting a new free trade agreement with the U.S. and Canada.

Following a pledge to revive the oil producer formally known as Petroleos Mexicanos and state utility Comision Federal de Electricidad, or CFE, Lopez Obrador is increasingly playing tough with private companies, particularly foreign groups. Regulatory changes and permitting delays are among measures deployed to stifle competition. The president has also publicly attacked Iberdrola and oil explorer Repsol SA as virtual monopolies.

Swelling Backlog

The backlog of stalled projects has spiraled dramatically since Lopez Obrador took office. Six months before his inauguration, there were fewer than 30 projects held up beyond the legal window. By mid-October, that figure was around 200, about half of which were applied for in 2019—months before Covid-19 emerged. Since October, regulators have greenlighted some projects but haven’t disclosed the scale of the approvals.

As a result, Mexico’s energy-investment climate is quickly deteriorating. During his first year in office foreign direct investment in all types of energy projects plunged by more than 60% to $2.25 billion, Economy Ministry figures showed. In the first three quarters of 2020, it slumped to $1.3 billion.

Investors are now very hesitant about committing money to Mexico due to concerns about the rule of law and lack of regulatory independence, said two executives who did not wish to be named for fear of government retribution.

The president’s office and AES declined to comment. The Energy Regulatory Commission said permitting delays “derived from the suspension of deadlines and legal terms” imposed in response to the pandemic.

Still, some foreign companies that aren’t in direct competition with state-run enterprises are finding it easier to do business, according to Doug Shanda, chief executive officer of Mexico Pacific Ltd., which is constructing a gas-export terminal in the northern state of Sonora.

Mexico Pacific’s pipeline permit was quickly approved by the regulator in May, even under reduced staffing due to the pandemic, Shanda said in an interview. The regulatory agency was “only meeting every other month,” he said.

Zama’s Fate

French energy giant Electricite de France SA has been waiting close to a year for a social-impact permit it needs to build a 300 megawatt wind farm. But the Energy Ministry office that issues such things has been shuttered for the pandemic and doesn’t plan to reopen until next year. Separately, Cubico Sustainable Investments, owned by two of Canada’s biggest pension funds, canceled a pair of renewable projects after regulatory snags, according to people familiar with the situation.

EDF said it “scrupulously follows Mexican and international procedures for consultation with local communities, associations and local authorities.” The social-impact permit has been delayed because the Covid-19 outbreak hampered efforts to obtain public input, the company said. As for Cubico, a spokesperson declined to comment.

In the oil sector, development of the Zama discovery has slowed after the Energy Ministry ordered Houston-based Talos Energy LLC and its partners to merge the find with the overlapping Uchukil field owned by Pemex.

Industry’s Future

With billions of dollars at stake, the Talos-led group and the Mexican oil titan have been at loggerheads for months over which entity can claim the lion’s share of the reserves. If no agreement is reached by the early January deadline, the Energy Ministry may decide for them. The standoff is being closely watched across the industry because of its implications for other foreign explorers.

“Up to this point we have taken all of the risk, spent all of the capital and found all the oil, and we are ready to work with Pemex to move forward to get this project into development so there is a line of sight on first production,” Talos CEO Tim Duncan said in an email. Pemex didn’t respond to requests for comment.

“The issue is much bigger than Zama itself,” said David Enriquez, a partner at Goodrich Riquelme y Asociados law firm. “What’s at risk is the future of the industry and whether the Mexican government takes the nationalist or pragmatic approach and does what’s best for the country.”