June 26, 2019 / 4:20 PM / 22 days ago

UPDATE 1-Shares of Mexico's IEnova fall after state seeks arbitration over pipeline

(Updates with background, context)

MEXICO CITY, June 26 (Reuters) - Shares of Mexican energy infrastructure firm IEnova fell on Wednesday after it said state power utility CFE had requested arbitration on a dispute over a natural gas pipeline, stirring concerns about how contracts are respected by the new government.

IEnova, a unit of U.S.-based Sempra Energy , said the CFE was seeking arbitration over the terms of a contract the Mexican firm had signed in partnership with TransCanada Corp, now known as TC Energy, to build a pipeline from Texas to the Mexican Gulf coast port of Tuxpan.

By 1545 GMT, shares in IEnova had dropped by 4.3%, taking the stock to its lowest level since May 10.

The CFE is seeking to negotiate “fairer” terms for a number of pipeline contracts signed by the previous government which President Andres Manuel Lopez Obrador has questioned, suggesting they may have been too costly for the state.

Lopez Obrador, a leftist who took office in December, has also said he will respect existing contracts.

IEnova said the project known as the Gasoducto Marino Sur de Texas-Tuxpan was completed this month. But for transportation services to begin, the CFE still had to issue a notification acknowledging the work had been completed, it said.

Analysts at bank Banorte said the arbitration push by the CFE could lead to a delay in the pipeline going into operation.

“In addition, it could affect investors’ perceptions of how secure signed contracts are,” Banorte said in a research note.

The pipeline project is worth more than $2.5 billion and has a capacity to transport 2.6 billion cubic feet of natural gas per day, which will raise Mexico’s import capacity for the product by around 40%, according to IEnova.

The company said the CFE was seeking to nullify certain clauses in the contract relating to transport services and to obtain reimbursement for some payments on the deal. IEnova added that it was willing to discuss the matter with the CFE.

Lopez Obrador has expressed concerns that close ties between former government officials and the private sector led to energy deals that were unfavorable for the Mexican state.

The president, who took office in December, has alarmed investors by cancelling a partially built $13 billion new Mexico City airport, and with his commitment to infrastructure projects that are viewed skeptically by financial markets.

He has pledged to revive the CFE and Mexico’s heavily- indebted state oil firm Petroleos Mexicanos (Pemex). (Reporting by Ana Isabel Martinez, Miguel Angel Gutierrez and Dave Graham Editing by Daniel Flynn and Marguerita Choy)

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