Mexico: Energy Reform - Proclamation Of Regulations On Secondary Legislation

Last Updated: 29 May 2015
Article by Santamarina Y Steta SC

On October 31, 2014, several regulations and regulatory instruments that will contribute to the implementation of the different laws in energy matters, issued and modified on August 11, 2014 (the "Secondary Legislation") as a result of the Decree by which were amended and improved articles 25, 27 and 28 of the Political Constitution of the Mexican United States, in energy matters, dated December 13, 2013 (the "Energy Reform"), were published in the Official Federal Gazette (Diario Oficial de la Federación).

1. Background

On December 20, 2013 the Senate of the Republic approved, both in general and particular, the "Draft decree reforming and adding articles 25, 27 and 28 of the Political Constitution of the United Mexican States in energy matters", with 95 votes in favor and 28 against.

Such decree, aside from amending the aforementioned constitutional articles, established 21 transitory articles that outlined the guidelines that should be reflected in the Secondary Legislation that would implement the Energy Reform, addressing the most relevant topics in it, detailing the key points that should be contained in the Secondary Legislation, as well as the different terms to perform specific actions related to the reform process.

On April 30, 2014 the Federal Executive Branch sent the Energy Reform bills for the Secondary Legislation to the Senate of the Republic, which formed a package of 21 laws, grouped into 9 blocks, of which 8 were new laws and the remaining 13 were laws that would be amended.

Once such bills were published, the legislative discussion started in extraordinary sessions at the Senate, and 4 rulings, which contained the laws proposed, were formulated. The rulings were discussed and approved by the Senate of the Republic and sent to the House of Representatives, where the legislative process continued. Once both chambers approved the rulings, an extraordinary period starting on July 28, 20140 was opened for the comprehensive approval of the Energy Reform. The Energy Reform was finally approved entirely and announced by the Federal Executive on August 11, 2014.

2. Issued Regulations

The Federal Executive branch issued the following regulations (the "Regulations"):

  • Regulations of the Oil and Gas Law (Reglamento de la Ley de Hidrocarburos)
  • Regulations of the activities referred to in Chapter Three of the Oil and Gas Law (Reglamento de las actividades a que se refiere el Título Tercero de la Ley de Hidrocarburos)
  • Oil and Gas Revenue Law Regulations (Reglamento de la Ley de Ingresos sobre Hidrocarburos);
  • Electric Industry Law Regulations (Reglamento de la Ley de la Industria Eléctrica)
  • Geothermal Energy Law Regulations (Reglamento de la Ley de Energía Geotérmica)
  • Regulations of Petroleos Mexicanos Law (Reglamento de la Ley de Petróleos Mexicanos)
  • Regulations of the Federal Commission of Electricity Law (Reglamento de la Ley de la Comisión Federal de Electricidad)
  • Internal Regulations of the Ministry of Energy (Reglamento Interior de la Secretaría de Energía)
  • Internal Regulations of the National Agency of Industrial Safety and Environmental Protection (Reglamento Interior de la Agencia Nacional de Seguridad Industrial y de Protección al Medio Ambiente del Sector Hidrocarburos)

The following decrees amending the existing regulatory instruments, relevant for the development of the energy sector, were also published:

  • Decree amending and supplementing various provisions of the Public Partnerships Law Regulation (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley de Asociaciones Público Privadas)
  • Decree amending and supplementing various provisions of the Federal Budget and Treasury Accountability Law (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley Federal de Presupuesto y Responsabilidad Hacendaria)
  • Decree amending and supplementing various provisions of the Internal Regulation for the Ministry of Finance and Public Credit (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento Interior de la Secretaría de Hacienda y Crédito Público)
  • Decree amending and supplementing various provisions of the Regulations of the Mining Law (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley Minera)
  • Decree amending and supplementing various provisions of the Regulations of the Foreign Investment Law and of the National Registry of Foreign Investment (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley de Inversión Extranjera y del Registro Nacional de Inversiones Extranjeras)
  • Decree amending and supplementing various provisions of the Internal Regulations of the Ministry of Economics (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento Interior de la Secretaría de Economía)
  • Decree amending and supplementing various provisions of the Internal Regulations of the Ministry of Agrarian, Territory, and Urban Development (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento Interior de la Secretaría de Desarrollo Agrario, Territorial y Urbano)
  • Decree amending and supplementing various provisions of the Regulations of the General Law for Sustainable Forestry Development (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley General de Desarrollo Forestal Sustentable)
  • Decree amending and supplementing various provisions of the Regulations of the General Law of Ecological Balance and Environmental Protection on Environmental Impact Assessment (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley General del Equilibrio Ecológico y la Protección al Ambiente en Materia de Evaluación del Impacto Ambiental)
  • Decree amending and supplementing various provisions of the Regulations of the General Law of Ecological Balance and Environmental Protection regarding prevention and Control of Air Pollution (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley General del Equilibrio Ecológico y la Protección al Ambiente en Materia de Prevención y Control de la Contaminación de la Atmósfera)
  • Decree amending and supplementing various provisions for the Regulations of the General Law for Prevention and Integral Waste Management (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley General para la Prevención y Gestión Integral de Residuos)
  • Decree amending and supplementing various provisions of the Regulations of the General Law of Ecological Balance and Environmental Protection on Environmental Zoning (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley General del Equilibrio Ecológico y la Protección al Ambiente en Materia de Ordenamiento Ecológico)
  • Decree amending and supplementing various provisions of the Regulations of the General Law of Ecological Balance and Environmental Protection regarding Emissions to the Atmosphere and Transfer of Pollutants (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley General del Equilibrio Ecológico y la Protección al Ambiente en Materia de Registro de Emisiones y Transferencia de Contaminantes)
  • Decree amending and supplementing various provisions of the Internal Regulations of the Ministry of Environment and Natural Resources (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento Interior de la Secretaría de Medio Ambiente y Recursos Naturales)
  • Decree amending and supplementing various provisions of the Regulations of the General Law of Ecological Balance and Environmental Protection on Self-Regulation and Environmental Audits (Decreto por el que reforman, adicionan y derogan diversas disposiciones del Reglamento de la Ley General del Equilibrio Ecológico y la Protección al Ambiente en Materia de Autorregulación y Auditorías Ambientales)

Similarly, in order to implement the provisions contained in the Secondary Legislation, the "Guidelines establishing criteria for the granting of Clean Energy Certificates and the corresponding acquisition requirements" and the "Decree which amended the executive order of creation of the Mexican Petroleum Institute as a Decentralized Agency" (Decreto por el que se reforma el diverso por el que se crea el Instituto Mexicano del Petróleo como Organismo Descentralizado), published on August 26, 1965, were issued.

3. Relevant Topics

The issuance of the Regulations aims at the proper implementation, at a legal level, of the provisions contained in the Secondary Legislation, to develop the activities within the energy industry.

Hydrocarbons

In order to regulate the oil and gas industry, various provisions were issued, which seek to implement the legal provisions of the Oil and Gas Law, the Oil and Gas Revenue Law and diverse instruments previously issued, as well as to perform the activities of the so called "Round Cero" and "Round One". Between the most important aspects are the following:

REGULATIONS FOR THE OIL AND GAS LAW

  • The Regulations for the Oil and Gas Law (the "Oil and Gas Regulations") regulate the First, Second and Fourth Titles for the Oil and Gas Law, and the Federal Law of the Administrative Procedure (Ley Federal del Procedimiento Administrativo) is supplementally applicable. The Oil and Gas Regulations define the concepts of Prior Consultation, Social Impact Assessment and Oil and Gas Industry, among others.
  • The Regulations provide, regarding oil assignments, that the Ministry of Energy (SENER) will be authorized to grant, modify, revoke and/or authorize the assignment or cancellations of oil assignments to perform exploration and extraction activities to productive state companies.
  • Regarding the granting of oil assignments, the Oil and Gas Regulations provide for the exceptions upon which the Federal Executive branch, through SENER, may grant oil assignments on areas where there are no existing contracts for the development of exploration and extraction activities. The motivation for such oil assignments should be based on the most suitable mechanisms for the interests of the State and the technical, financial and execution capacity to extract hydrocarbons in an efficient and competitive way for the corresponding assignee. Such assignation should have prior authorization from the National Commission of Hydrocarbons (Comisión Nacional de Hidrocarburos) (CNH), through a technical ruling that includes the analysis on the performance of any of the exceptions foreseen in the Oil and Gas Regulations and, in its case, the adjustment to the proposal for the assignment area, sent by SENER. Regarding the minimum percentage of national content, SENER should include it in the corresponding assignment title, with the opinion of the Ministry of Economy, confirming that such percentage does not generate unduly advantages which can affect the competitive position of the assignees or contractors.
  • The Oil and Gas Regulations foresee the specific guidelines to carry out the modification, assignment, cancellation or revocation of oil assignments, the cases of acts of God or force majeure and all others established in the assignment title will be considered justified causes not to initiate or suspend the activities foreseen for exploration and/or extraction of the assignment areas.
  • The Oil and Gas Regulations establish that the CNH will have to, during the month of June of the first year of every five year period, propose to SENER the five-year period plan, which should contain the plan regarding the areas to bid on during the five-year period and the general characteristics of such areas. SENER, during the third trimester of every year, will evaluate and make the corresponding additions or modifications to the five-year plan. Every year, on September 30, at the latest, SENER should submit before the Ministry of Treasury and Public Credit (SHCP) the information on the areas that will be bid on the following year. Additionally, SENER will be able to consider the proposals for areas over which there is interest, as long as they have been submitted during the second trimester of the year in question, at the latest.
  • Regarding the migration of assignments to contracts for exploration and extraction, the Oil and Gas Regulations establish the guidelines to perform such procedure, which will start with a request submitted before SENER and which shall include: (i) the identification of the assignment to migrate; (ii) the reasons that justify the convenience of such migration; (iii) the price scenarios used; (iv) the geological characteristics of the area; (v) the quality, content of sulfur, and API1 grades of the hydrocarbons; (vi) the description of the existing infrastructure inside and around the assignment area; and (vii) as applicable, the statement of interest to hold any alliance or association with corporations, among other elements.
  • SENER will resolve on the precedence of the referred request for migration, in accordance with the procedure indicated in the Oil and Gas Regulations and, in case the migration proceeds, it will send the SHCP (i) the complete migration request; (ii) the corresponding resolution regarding the migration; (iii) the proposal for the corresponding contract model for the area in question; and (iv) the support information, as determined. Once the contract model is defined, SENER shall determine the technical terms and conditions and request the SHCP to establish the economic conditions related to tax terms, in accordance with the Oil and Gas Revenue Law and its regulations. The productive state company may either accept or reject the corresponding terms and conditions; in case of rejection, the assignment will be preserved in its original terms, and, in case of acceptance, SENER will send the CNH all the necessary information for the execution of the corresponding exploration and extraction contract.
  • The Oil and Gas Regulations provides for the cases where a productive state company is interested in holding an alliance or association with a company, at any moment after an exploration and extraction contract coming from a migration has been formalized, for which, the selection of the company which will be part of such alliance or association will be subject to the applicable provisions regarding bidding processes for exploration and extraction contracts contained in the Oil and Gas Regulations, as well as the provisions contained in the Oil and Gas Law.
  • The bidding process for exploration and extraction contracts referred to in the previous paragraph will initiate through a public call, notified to the SHCP by SENER, for which, before the SENER can send the final documents to the CNH, the following steps shall be carried out:

(i) SENER will send the SHCP the proposed contract model for the corresponding Contractual Area2 and the SHCP and the CNH will issue their opinion regarding said proposed contract model.

(ii) SENER will determine, once the contract model has been approved, the terms and conditions, and will request the SHCP to establish the economic conditions regarding the applicable tax terms.

(iii) The Ministry of Economy will issue its opinion regarding the minimum percentage of national content.

(iv) SENER will prepare the technical guidelines to be followed in the bidding process.

(v) SENER will request from the Federal Competition Commission its opinion on the pre-qualification criteria and the allocation mechanism for exploration and extraction contracts.

  • The Oil and Gas Regulations also establish the requirements for the bidding bases for the allocation of exploration and extraction contracts that the CNH shall issue and in which the allocation of one or several contracts will be possible, in one or several contractual areas, and the possibility of participating in the bid for one or several contractual areas and any other mechanism or rule that is considered appropriate for the better performance and implementation of the bidding processes.
  • In those cases in which a productive state company has requested the alliance or association in terms of the cases established in the Oil and Gas Regulations, SENER will determine the contract model and terms, and the SHCP will issue its opinion on the proposals of the processes for association or alliance and the joint operation agreement.
  • The administrative cancellation of exploration and extraction contracts shall be approved by the CNH, as well as the acts of God and force majeure and all others established by the corresponding contract, and which will be considered as justified causes not to initiate or suspend the activities expected in the corresponding Contractual Area.
  • Regarding the faculty of the CNH to, upon request from the Mexican Stabilization and Development Oil Fund (Fondo Mexicano del Petróleo para la Estabilización y el Desarrollo), hire Petróleos Mexicanos (Pemex), any other productive state company or a corporation to offer the Nation services, in exchange for a consideration, of commercialization of the hydrocarbons that the State obtains from the exploration and extraction contracts, the corresponding procurement will be carried out through a public bid, in accordance with the Law for Public Acquisitions, Leasing and Services (Ley de Adquisiciones, Arrendamientos y Servicios del Sector Público) and its regulations.
  • The Oil and Gas Regulations establishes the requirements for the application submitted by the holders of a mining concession who are interested in obtaining the direct award of a natural gas exploration and extraction contract associated to their mine, as well as the procedure according to which SENER will resolve said request for direct award and the applicable provisions in case such allocation proceeds. Regarding the direct award of an exploration and extraction contract for the natural gas associated to a coalmine, the guidelines to be followed by SENER and the SHCP are also established, in case such award proceeds.
  • For the case of assignments and exploration and extraction contracts coexisting with mining concessions, the Oil and Gas Regulations establish the guidelines and terms for the negotiations between the contractors and/or assignees and the corresponding concessionaires. In case of reaching an agreement, the corresponding notice shall be submitted before the CNH.
  • The Oil and Gas Regulations establish the obligation by the SENER, the Ministry of Economy, the CNH and the Energy Regulatory Commission (Comisión Reguladora de Energía) (CRE) of having a complete information system for the measurement of hydrocarbons, oil products and petrochemicals.
  • The Oil and Gas Regulations establish the content requisites for the social impact study for which SENER is responsible, and required for any assignment or public call issuance for the bid for an exploration and extraction contract. All assignees or contractors, as well as those interested in obtaining a permit or authorization to develop projects in the oil and gas industry shall submit the social impact assessment; they following will not be subject to the submission of the social impact assessment: (i) the assignees and contractors who request authorizations to perform activities inside the Assignment Area3 or the Contractual Area, nor (ii) those interested in obtaining a permit to perform commercialization activities for hydrocarbons, oil products and petrochemicals, as long as they do not perform any works or development of infrastructure.
  • The Oil and Gas Regulations establish that the prior consultation for which SENER is responsible will be performed in coordination with the Ministry of Interior, the National Commission for the Development of the Indigenous Peoples and the National Agency of Industrial Safety and Environmental Protection. In the case of projects developed by the productive state companies, they will perform the prior consultation procedures, in accordance with the applicable legislation and the prior consultation to indigenous communities and peoples will be done through its representative institutions and in terms of the appropriate procedures.
  • The minimum general phases that the prior consultation will contain are established, and will include: (i) consultation plan; (ii) previous agreements; (iii) informative; (iv) deliberative; (v) consultive; and (vi) agreement follow-up. The guiding principles of good faith, freedom, cultural pertinence, transparence, accommodation and rationality shall be observed in prior consultation procedures, in order to reach agreements and obtain the free and informed consent of the community in question.
  • The Advisory Board, in terms of the Oil and Gas Regulations, will be in charge of supporting the fostering of local productive chains related to the oil and gas industry and will be integrated by (i) a representative of the Ministry of Economy (who will preside it); (ii) a representative of SENER; (iii) a representative of the CNH; and (iv) a representative of the CRE. The sessions of the Advisory Board will require the presence of the majority of its members for ordinary sessions, which will be held at least once every four months, and extraordinary sessions at any time, at the president of the Advisory Board's best discretion
  • The Oil and Gas Law establishes that the group of activities for exploration and extraction of hydrocarbons that are performed through assignments and exploration and extraction contracts in the national territory should reach, in average, at least thirty five percent of national content and the assignees and contractors should individually and progressively comply with a minimum percentage of national content, for which SENER will be in charge, in collaboration with the Ministry of Economy, of determining such minimum percentage of national content. In case an assignee or contractor fails to comply with the percentage of national content, SENER will notify the CNH and CNH will impose the corresponding sanctions, in accordance with the applicable legislation.
  • The Oil and Gas Regulations establish the procedure to which the corresponding administrative authorities should be subject to for the imposition of fines.

The main transitory provisions established in the Oil and Gas Regulations are the following:

  • The methodologies, guidelines and general administrative provisions on the matters referred to in the Oil and Gas Regulations shall be issued, at the latest, within one hundred and eighty working days after the Oil and Gas Regulations enter into force.
  • The contract models and methodologies for (i) the terms to which the National Center for Natural Gas Control (Centro Nacional de Control de la Energía) (CENAGAS) will be subject to comply with its obligations and (ii) the rules for the managers of the integrated systems, shall be published by the CRE in a term of ninety working days starting from the date of entrance into force of the Oil and Gas Regulations.
  • The assignments, contracts and judicial acts granted or executed in terms of the Regulations of the Regulatory Law of Constitutional Article 27 in the Oil Sector will be valid in all terms which do not oppose to the provisions of the Oil and Gas Regulations; also, the requests for contracts, permits and authorizations which were in process when the Oil and Gas Regulations entered into force will be resolved in accordance with the provisions effective at the time of submission of the corresponding request.
  • SENER will have to issue the first five-year period plan during the first semester of 2015.
  • The content requisites of the applications that should be submitted by the parties of the integral exploration and production contracts and the financed public works contracts who want to opt for the migration of the assignment of an exploration and extraction contract, without the need to carry out the public bid procedure are indicated; such application will be resolved by SENER, in accordance with the established procedure.
  • SENER will issue the methodologies, parameters and guidelines that will work as reference to determine the percentage of the revenue corresponding to the assignee or contractor in the projects for the commercial extraction of hydrocarbons, regarding the consideration for the use, enjoyment or affectation of the lands, goods or rights for the activities of exploration and extraction of hydrocarbons, on the last working day of May 2015, at the latest.
  • SENER will issue the guidelines that will regulate the cases and conditions for participation, as well as the mechanisms for the designation of social witnesses in the negotiations between assignees and contractors or owners or landlords of the corresponding land, goods or rights, within the ninety natural days after the entrance into force of the Oil and Gas Regulations.
  • SENER will publish the tabulators for the average values of the land and its accessories for its use, occupation or acquisition within sixty natural days after the entrance into force of the Oil and Gas Regulations.
  • The Ministry of Agricultural, Territorial and Urban Development will publish the guidelines regarding the mediation for the acquisition forms, use, enjoyment or affectation of the lands, goods and the corresponding consideration, within one hundred and eighty natural days after the entrance into force of the Oil and Gas Regulations.
  • The assignees and contractors will be granted a term of one hundred and eighty working days to adequate their infrastructure, so that they have the equipment that will allow the proper measurement of hydrocarbons.

REGULATIONS OF THE ACTIVITIES REFERRED TO IN CHAPTER THREE OF THE OIL AND GAS LAW

  • The Regulations of the activities referred to in Chapter Three of the Oil and Gas Law (the "Third Title Regulations") regulate the permits for oil treatment and refinement activities; processing of natural gas; hydrocarbons and oil products export and import; transportation, storage, distribution, compression, decompression, liquefaction, regasification, commercialization and retailing of hydrocarbons, oil products or petrochemicals, as applicable, as well as the management of integrated systems, in terms of the Third Title of the Oil and Gas Law.
  • The Third Title Regulations specify the powers of SENER, and the CRE. SENER will be in charge of regulating and supervising, as well as granting, modifying and revoking permits for oil treatment and refinement, processing of natural gas, and hydrocarbons and oil products export and import, in terms of the Foreign Commerce Law (Ley de Comercio Exterior) and with support of the Ministry of Economy. The CRE will be in charge of regulating and supervising, as well as granting, modifying and revoking permits for hydrocarbons and oil products transportation and storage; duct transportation and storage of petrochemicals; distribution of natural gas and oil products; regasification, liquefaction, compression and decompression of natural gas; marketing and retailing of natural gas and oil products; distribution of fuel for aircrafts and the management of the integrated systems, including the national natural gas transportation and storage system.
  • The Third Title Regulations provide for the necessary permits for oil and gas activities; one same person is allowed to be head of, directly or indirectly, through affiliates or subsidiaries, of different permits issued by SENER and the CRE, correspondingly, with a validity of up to thirty years, except for permits for import and export of hydrocarbons and oil products, which validity will be established in the terms of the Foreign Commerce Law.
  • The Third Title Regulations define commercialization as the activity of offering users or end users, together or separately, the sale and purchase of hydrocarbons, oil products or petrochemicals; the management or procurement of the transportation, storage or distribution services for such products and the offering or intermediation of value-added services in benefit of the users or end users. The commercialization permits do not entail the ownership of the infrastructure, or the offering of the services used and which fall within the purpose of permits.
  • The Third Title Regulations state that storage comprises the activity of receiving hydrocarbons, oil products or petrochemicals property of third parties, at the points of reception, keeping them in deposit, guarding them and handing them over to the depositor at the determined delivery points, in accordance with the provisions of the general administrative provisions issued by the CRE, excluding the deposit of goods that, in accordance with the criteria established by the CRE, are directly linked to oil treatment and refinement, processing of natural gas and distribution and retailing of oil products for the performance of their processes and activities; in the case of petrochemicals, only their storage linked to ducts will be subject to permit.
  • The Third Title Regulations establish provisions regarding transportation of hydrocarbons and oil products, which can be made through ducts, auto-tanks, semi-trailers, car-tanks or ship-tanks; in the case of petrochemicals, only their transportation through ducts will be subject to permit.
  • To obtain the corresponding permits, those interested in obtaining such permits should submit a request before SENER or the CRE, correspondingly, including the required data, as well as the social impact assessment referred to in the Oil and Gas Law. SENER and the CRE will issue, through general administrative provisions, the formats and specifications, in its case, of the requisites for each permissioned activity.
  • The modification and the assignments of the permits is regulated, it is also stated that SENER or the CRE, respectively, can issue general administrative provisions that will establish the models for the permit titles for each one of the permissioned activities.
  • The concessionaires should submit before SENER or the CRE, correspondingly and for regulation purposes, the information related to their activities and will be obligated to prove the legal precedence of the hydrocarbons, oil products and petrochemicals; they will also be obligated to prove the property or legitimate possession of the equipment used to perform the activities under their permits.
  • The CRE is granted the power to approve the creation, extension, expansion and optimization of integrated systems, it is also noted that during the month of April of the first year of every five-year period, the managers of the integrated systems should submit before SENER the proposals for the five-year plans for expansion and optimization of the national natural gas transportation and storage integrated system.
  • The CRE will establish the terms and conditions for offering the services for each permissioned activity; similarly, the suspension of the services by the concessionaires is regulated. The suspension of the services or activities will operate in terms of the general administrative provisions issued, for such purposes, by SENER or the CRE, respectively.
  • The CRE is granted the power to issue, through general administrative provisions, the regulation of the considerations, prices or rates for the permissioned activities, with exception of the commercialization and retailing activities of liquefied oil gas, gasoline and diesel, which prices will be determined in accordance with the market conditions. The considerations, prices or rates approved by the CRE will be the maximum amounts approved and the concessionaires may enter into conventional agreements or negotiate discounts in terms of the criteria determined by the CRE, through general administrative provisions.
  • The CRE will establish, through general administrative provisions, the criteria that the CENAGAS should observe in the preparation of the bases for public bids on the projects.

The main transitory provisions established in the Third Title Regulations are the following:

  • SENER and the CRE will be able to apply the legal provisions regarding the granting and regulation of permits, including the general administrative provisions, as long as they do not oppose to the Oil and Gas Law nor to the Third Title Regulations.
  • SENER and the CRE shall issue the general administrative provisions and all other rules derived from the Oil and Gas Law and the Third Title Regulations on December 31, 2015, at the latest.
  • The provisions of the Regulations for Natural Gas and the Regulations for Liquefied Oil Gas will continue to be applicable to valid self-use permits, as long as they do not oppose to the Oil and Gas Law nor to the Third Title Regulations, and until the corresponding general administrative provisions are issued. Any modification of the terms and conditions of the permits granted before the entrance into force of the Third Title Regulations will be made in accordance with the Oil and Gas Law, the Oil and Gas Regulations, the Third Title Regulations and all other applicable legal provisions.
  • SENER and the CRE will continue to verify compliance with the applicable Official Mexican Standards (Normas Oficiales Mexicanas), until the National Agency of Industrial Safety and Environmental Protection takes charge.
  • The CRE will issue the general administrative provisions applicable to first-hand sales and commercialization, in a term of twelve months from the entrance into force of the Third Title Regulations.
  • The permits issued by the SENER and which fall under the scope of regulation of the CRE shall be transferred on December 31, 2015, at the latest.
  • The CRE shall publish the procedures for the registry by the concessionaires regarding commercial transactions, volumes handled, quality and prices applied, on December 31, 2015, at the latest.
  • Pemex shall deliver to the CRE the information and registrations it has, regarding the people that perform retailing activities for gasoline and diesel, on June 30, 2015, at the latest.
  • SENER will issue the first five-year plan for the expansion of the national natural gas transportation storage integrated system, at the latest, on the second semester of 2016, and the CENAGAS will send SENER the corresponding proposal, on June 30, 2016, at the latest.
  • Those who, on the date of entrance into force of the Third Title Regulations, have facilities designed as service stations for self-consumption and supply of fuel for automobile vehicles used to perform their activities will require the granting of self-use storage permits, in accordance with the general administrative provisions issued by the CRE.

REGULATIONS OF THE OIL AND GAS REVENUE LAW

  • The Regulations for the Oil and Gas Revenue Law (i) grant the SHCP the power to issue general provisions to apply the Oil and Gas Revenue Law; (ii) regulate the determination of the economic conditions regarding tax terms of the contracts for public bid processes; (iii) regulate the migration processes from assignments into a type of contract, in accordance with the Oil and Gas Law; (iv) provide for the award of contracts to mining concessionaries; and (v) specify the guidelines to perform the determination and verification of the consideration, revenue from assignments, the fund for hydrocarbon producing federal entities and municipalities, among others.

Electricity

For the case of the electric sector, various regulations were issued in order to detail the application of the provisions established in the Electric Industry Law (LIE), in preparation for the operation of the new institutions and the new activities that constitute the electric industry. Likewise, the implementation of the Geothermal Energy Law, as well as the modifications to the Law of National Waters is sought. Among the most relevant aspects of the regulatory instruments are the following:

REGULATIONS OF THE ELECTRIC INDUSTRY LAW

  • The Regulations of the Electric Industry Law (RLIE) confirm the possibility for particulars to execute contracts with the Federal Commission of Electricity (Comisión Federal de Electricidad) (CFE) to perform actions related to offering the public service of transmission and distribution of electric energy.
  • The RLIE detail the way in which the National Center for Energy Control (CENACE) will perform the auctions for the acquisition of electric energy when the reliability of the National Electric System is at risk.
  • Regarding the regime for generation and supply permits, the requisites that individuals shall comply with before the CRE are clearly stated, as well as the administrative procedure for the admission and processing of the requests.
  • The RLIE restate the obligation of open and non-discriminatory access to the public grids of the transmission and distribution service to all participants of the electric industry, in accordance with the criteria established by the CRE and the CENACE, respectively.
  • The RLIE clearly detail the donation regime for those participants of the industry who request specific works or the expansion or modification in the existing facilities of the national transmission grid. " The RLIE define the way in which qualified users and traders will register before the CRE to perform consumption and commercialization activities, correspondingly, in the terms established by the LIE.
  • The RLIE establish the general operation guidelines of the Wholesale Electricity Market (Mercado Eléctrico Mayorista) (MEM), which will be subject to the corresponding market rules. These general guidelines state, among other things, the characteristics of power plants, the methodologies to forecast the demand level and offer availability, the assignment and dispatch of the plants and the procedures to include the export and import of electric energy in the MEM.
  • The RLIE confirm the obligation to incorporate a social impact assessment and a community consultation as requisite for the development of projects in the electric industry. This obligation is applicable to all the participants of the industry (including the productive state companies). Regarding the consultation, SENER will be responsible for conducting such procedures through the issuance of the corresponding administrative provisions.
  • The RLIE regulate the procedures of surface use and occupation of land for the development of the activities of the electric industry, establishing the need to engage into fair negotiations, under the observation of social witnesses, and with an appropriate system for considerations.
  • The RLIE establish the procedure for control, verification and supervision activities that SENER and the CRE will perform for the compliance with the provisions of the LIE and the RLIE.
  • Regarding the minimum percentage of national content for the activities of installation or expansion of the infrastructure required to offer the public services of transmission and distribution, the RLIE state that such percentage will be detailed in each contract or association, on a "case by case" basis, through SENER, with the opinion of the Ministry of Economy, which will verify compliance with the national content provisions, based on the guidelines issued on November 13, 2014.
  • The RLIE establish the issuance of various regulatory instruments that it will implement the activities that comprise the electric industry, such as (i) the market rules; (ii) the bases of the market; and (iii) the methodology for the definition of the areas of direct and indirect influence in the development of projects in the electric industry. General administrative provisions will also be issued regarding: (i) intelligent electrical networks; (ii) the regulation of the consideration, prices, regulated rates and regulatory accounting for offering the public services of transmission and distribution; (iii) the provision of the electrical supply service; (iv) the operation of the CENACE; (v) the related services not included in the MEM; (vi) the formats and specifications to determine regulated rates; (vii) the regulation of the cases and conditions for donations by the applicants; (viii) the criteria and bases to determine the amount of the contributions; (ix) the procedures for community consultation; (x) the participation of social witnesses; (xi) the mediation procedures in the negotiations for surface-area; and (xii) the guidelines on verification processes.

The main transitory provisions established in the RLIE are the following:

  • CFE will be responsible for completing the public bid processes, executing and administrating the respective contracts and supervising the construction of the power plants that have been included in the Federation's Expenditure Budget (Presuepuesto de Egresos de la Federación), for its development under the modality of conditioned investment, until SENER establishes the terms for the legal separation of activities referred to in the LIE.
  • Until the CRE issues the provisions or criteria regarding quality, reliability, continuity and security for the dispatch of the National Electric System, those issued before the entrance into force of the LIE will remain in force.
  • The provisions issued before the entrance into force of the LIE regarding contracting, rates, measurement, billing, collection and other concepts related to the supply and sale of electric energy will remain in force, until the new provisions on these matters are issued.
  • The CENACE will verify that the charges of the end user comply with the limits of harmonic distortion from the current that they inject or transmit to the National Electric System, until the corresponding market rules are issued.
  • The CENACE will manage and carry out the studies related to the execution and modification of the given interconnection agreements (contratos de interconexión legados). The obligation of the transporters and the distributors to execute the interconnection agreements is applicable to the given interconnection agreements and to all other related instruments. Such obligation will correspond to CFE until the legal separation referred to in the LIE is performed.
  • Within a maximum period of two years, counted from the commencement of operations of the MEM, the CENACE will perform, on behalf of the suppliers and qualified users participants of the market, the estimate for the demand and electric consumption of their power centers for purposes of planning of the dispatch and operation of the National Electric System.

REGULATIONS OF THE GEOTHERMAL ENERGY LAW

  • The Regulations of the Geothermal Energy Law (RLEG) establish the requisites, procedures and other acts which will allow the performance of the activities under the scope of regulation of the Geothermal Energy Law (LEG).
  • Geothermal water concession is defined as the concession granted by the National Waters Commission (Comisión Nacional de Aguas) for the exploitation, use of and benefit from underground waters contained in hydrothermal geothermal deposits.
  • The RLEG establish the procedure regarding the requisites, terms and the administrative procedure to obtain registries, permits or concessions for the activities of the LEG. Such procedure also provides for a consultation obligation before the National Commission for the Development of the Indigenous Peoples. The RLEG details the procedure to terminate permits and concessions.
  • The RLEG provides for the specific requirements to obtain permits and concessions in terms of the LEG.
  • The RLEG establish the cases for assignment of rights of the concessions, detailing the requisites and the necessary procedure, as well as the main points that the corresponding contract for the assignment of rights shall contain.
  • The RLEG specifies the required content for the public calls to initiate a public bid procedure, regarding the granting of concessions withdrawn by the concessionaries or that have been object of early termination, revocation or expiration of the permit titles.
  • The RLEG describes the way in which the Geothermic Registry will be integrated, and which will contain all the administrative acts concerning the geothermal industry performed by individuals or the productive state companies.

The main transitory provisions established in the RLEG state that:

  • The users who, prior entrance into force of the LEG, performed activities of exploration or exploitation of geothermal resources to generate electric energy or for various usages and who, in accordance with the National Waters Law (Ley de Aguas Nacionales) did not require a concession, registry or permit and wish to exercise their rights in terms of the LEG, shall submit before SENER the documentation evidencing that they performed the exploration or exploitation of geothermal resources, based on which SENER can evaluate if such activities were performed for their own benefit.

Transformation of state companies

The issued regulations contain provisions related to the transformation of the state companies in the energy sector (Pemex and CFE) into productive state companies in order to reinforce such companies and their productive activities to transform the sector, introducing a competitive process between the participating companies. Among the outstanding provisions in this area we find the following:

REGULATIONS OF THE FEDERAL COMMISSION OF ELECTRICITY LAW AND THE LAW OF PETRÓLEOS MEXICANOS

  • The new Regulations of the Federal Commission of Electricity Law and of the Law of Petróleos Mexicanos detail the provisions related to the members of the administration councils of CFE and Pemex; the guidelines for the designation and removal of its members, the different events for conflict of interest and their compensation are included.
  • The referred regulations establish the procedure to perform the global evaluation for the operation and performance of both productive state companies and retake the provisions related to the special regime, indicating the guidelines to follow regarding the right of appeal procedure in procurement matters.
  • The referred regulations establish different provisions on the transformation and change of legal regime, the attributions of SENER and the SHCP, their responsibilities and the global financing proposal, between other things applicable to CFE, Pemex and the productive subsidiary companies and affiliates in which they participate directly.

The main transitory provisions established in the referred regulations state that:

  • The appeals, conciliation procedures and updating of the programs and investment projects in charge of CFE and Pemex or its subsidiary bodies initiated before the entrance into force of these regulations will continue to be processed in accordance with the provisions effective at the time they were initiated.

Institutional Strengthening

Such as the issuance dated August 11, 2014 of the different laws in energy matters that integrated the Secondary Legislation, the issued regulations seek to implement a deep restructuring of the Mexican energy sector, strengthening its institutions and providing Among the most relevant provisions are the following:

INTERNAL REGULATIONS OF THE MINISTRY OF ENERGY (SENER)

  • The Internal Regulations of the Ministry of Energy establish the powers conferred to SENER by the Organic Law of the Federal Public Administration (Ley Orgánica de la Administración Pública Federal) and other legislative instruments applicable to the minister, who will be head of SENER and, for the performance of its functions, will be helped by the following administrative units:
    a) Sub-Ministry of Electricity
    b) Sub-Ministry of Hydrocarbons
    c) Sub-Ministry of Planning and Energy Transition
    d) Senior Director
    e) Office of the Minister
    f) Administrative Independent Bodies (National Nuclear Security and Protection Commission (Comisión Nacional de Seguridad Nuclear y Salvaguardias) and National Commission for the Efficient Use of Energy (Comisión Nacional para el Uso Eficiente de la Energía)
  • The referred regulations establish that the representation, process and resolution of the matters under the scope of regulation of SENER correspond, originally, to the Minister, as he is able to delegate his faculties (contained in SENER's Internal Regulations) to public subordinate officers, except for those faculties that are non-transferrable, in terms of the applicable legislation. They also establish the faculties of the undersecretaries, the senior director and the rest of their subordinates.
  • These regulations break down the powers of the administrative units of the Sub-Ministries of Electricity, Hydrocarbons and Planning and Energy Transition, on which it is mentioned, without limitations, the faculty of the Sub-Ministry of Electricity to deal with issues regarding to the National Electric System and the verification of the efficient operation of said system, as well as the performance of the Nation in matters of oil and all solid, liquid and gas hydrogen carbons, and the proposal from the Minister of Energy regarding the annual production platform for oil and gas, as faculties of the Sub-Ministry of Hydrocarbons.
  • The regulations enlist the faculties of the administrative units of the office of the Minister, such as those conferred to the Unit of Judicial Affairs, the General Department of Inter-institutional Liaisons, the General Department of International Affairs and the General Department for Social Communication, among others.
  • The regulations define the National Nuclear Security and Protection Commission and the National Commission for the Efficient Use of Energy, as independent administrative bodies hierarchically subordinated and which have technical and operational autonomy, establishing the faculties of the director general of the National Nuclear Security and Protection Commission.
  • The guidelines for the Internal Control Institution for SENER and its independent administrative bodies are indicated.
  • The regulations abrogate the Internal Regulations for SENER published in the Official Federal Gazette on October 11, 2012, and all opposing provisions are derogated.

Internal Regulations of the National Agency of Industrial Safety and Environmental Protection

The Internal Regulations of the National Agency of Industrial Safety and Environmental Protection (the "Agency") establish (i) the powers conferred by the Law of the National Agency of Industrial Safety and Environmental Protection, the Oil and Gas Law and other legislative instruments applicable, to the executive director, who will be the head of such Agency and that, for the performance of his functions, will be helped by different administrative units and by two councils: a technical one and a scientific council; (ii) all the faculties of each one of the mentioned institutions; and (iii) the provisions to strengthen the powers of the Agency, by being responsible of establishing the regulation and the industrial and operational security which minimize the risk for accidents in facilities or the effects on the environment provoked by these activities of the hydrocarbons sector.

OTHER REGULATIONS

  • The Decree amending and supplementing various provisions of the Public Partnerships Law Regulation contains (i) the limits imposed on the institutions and federal entities in charge of strategic areas to participate in strategic projects of public partnerships; such institutions and federal entities can only carry out such projects when their purpose exclusively includes activities in which, in accordance with the specific legislation, the private sector can participate freely or through permits, authorizations or concessions and (ii) the express prohibition for the productive state companies to execute contracts for public partnerships with individuals for the performance of hydrocarbons exploration and extraction activities.
  • The Decree amending and supplementing various provisions of the Federal Budget and Treasury Accountability Law contains (i) the adaptation to the new definitions and figures derived from the Energy Reform into the Federal Budget and Treasury Accountability Law, as is the case of the productive State companies, the subsidiary companies of Pemex and the Mexican Oil Fund; (ii) the elimination of the responsibility by the SHCP for verifying the investment expense of the budget project for Pemex, as well as the analytic scenario for finance balance targets, being consistent with the global financing capacity of the public sector and, in general, excluding the productive state companies from applying the referred regulations; (iii) the guidelines that the Mexican Oil Fund must follow to transfer the financial returns to the Federations' Treasury; (iv) the option to perform the compensation of incomes of the State (through the Budgetary Income Stabilization Fund and the Income of the Federal Entities Stabilization Fund) with the resources of the Mexican Oil Fund, when resulting from minor oil income; and (v) the continuity of the subsidies in different branches (such as in the case of electric energy), when these are charged to the budget of the corresponding entity and they complies with certain guidelines established in the referred regulations.
  • The Decree amending and supplementing various provisions of the Internal Regulation for the Ministry of Finance and Public Credit modifies the Internal Regulation for the Ministry of Finance and Public Credit (RISHCP) to reflect the changes to the legislative framework of the energy sector. Different administrative units are created within the SHCP, such as the General Department of Public Finance and the General Joint Department for State Prices, Rates and Dividends. To regulate the contracts for exploration and extraction of hydrocarbons that will be awarded in accordance with the Oil and Gas Law, the RISHCP creates the Hydrocarbons Revenue Unit, to regulate the economical design of contracts, supervise the operations of hydrocarbons revenue, and perform the analysis and verification of income thereof, among other activities.

    The Non-Tax Income Policy Unit is empowered to (i) determine the economic conditions related to the tax terms that shall be included in the bases for public bids for the award the exploration and extraction contracts; (ii) authorize the variation in the amount of the payments of duties for hydrocarbons exploration and extraction activities, for profit-sharing duties, for the income tax that the Mexican Stabilization and Development Oil Fund should pay; and (iii) exercise the faculties conferred to SENER in the laws and provisions applicable to oil and gas and electric energy matters which are expressly conferred to another administrative unit, among other faculties.
  • The Decree amending and supplementing various provisions of the Regulations of the Mining Law establishes, among the most relevant changes in the energy sector, the following: (i) the modification of certain terms for the Regulations of the Mining Law in order for it to be consistent with the new regulatory framework of the energy industry; (ii) the inclusion of provisions regarding the events of coexistence of mining activities with the preferential activities of exploration and extraction of oil and other hydrocarbons or the public services of transmission and distribution of electric energy in the same surface-area, in the context of an application for a mining concession; and (iii) the inclusion of exploration and extraction contracts in light of the requests to perform works for activities of exploration and exploitation of carbon in land where, formerly, only the existence of oil assignments was considered.
  • The Decree amending and supplementing various provisions of the Regulations of the Foreign Investment Law and of the National Registry of Foreign Investment establishes, among the most relevant changes in energy matters, the following: (i) the provision for the National Foreign Investment Commission to consider the investments that are statistically significant for the measurement of foreign investment flows where energy investments will participate, when establishing the amounts of foreign investment which will determine the obligation to submit before the National Registry of Foreign Investments the information referred to in the Regulations of the Foreign Investment and the National Registry of Foreign Investments Law, and (ii) the faculty of the Ministry of Economy to perform surveys on those who are registered before the Registry of Foreign Investments, to obtain relevant information for the preparation of statistics or diagnostics regarding the impact of foreign investments over the National Economy, anticipating the relevance of the energy investments.
  • The Decree amending and supplementing various provisions of the Internal Regulations of the Ministry of Economics provides for the creation of a specialized unit (the Content and Improvement of Productive Chains and Investment in the Energy Sector Unit) and two general departments (the General Department for the Development of Productive Chains and Investment in the Energy Sector and the General Department of National Content in the Energy Sector) to comply with the new attributions derived from the Energy Reform, within which it is noteworthy to mention the establishment of the national content objective in assignments and exploration and extraction contracts and other activities in the oil and gas industry, as well as in the electric industry, in terms of the Oil and Gas Law and the LIE.
  • The Decree amending and supplementing various provisions of the Internal Regulations of the Ministry of Agrarian, Territory, and Urban Development provides for the creation of a specialized unit (the Unit for the Use of Land for Energy Projects and Investments of Mining Funds) and two general departments (the General Department for Contracts and Negotiations and the General Department for Organization and Evaluation of the Fund for the Sustainable Regional Development of Mining States and Municipalities) to comply with the new attributions derived from the Energy Reform, among which are (i) proposing actions tending to ease the resolution of conflicts between the assignees, contractors, generators, transporters or distributors of energy and the owners or landowners of the lands, goods or rights therein, when the participation of the referred ministry, through a duly authorized representative, is formally required, in terms of the Oil and Gas Law, the LIE, their regulations and other applicable legal provisions; (ii) executing actions which tend to ease the resolution of conflicts related to the procedures where the Unit for the Use of the Land for Energy Projects and Investments of Mining Funds is involved; and (iii) coordinating the integration and verifying the operation of the regional Development Committees for the Mining Zones in the federal entities, respectively.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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