Mexico: Energy And Natural Resources

Mexico has recently seen a new Energy reform which sets out very significant changes to transform Mexico into a competitive and worthy of investment country. We find out more by speaking to Jesús Rodríguez Dávalos from law firm Rodríguez Dávalos Abogados, specialized in the energy sector.

Could You Give Us A Brief Overview Of Mexico´s Constitutional Energy Reform?

Previous to the Reform, Mexico´s stagnant energy sector was losing competitiveness and investment opportunities due to a stiff legal framework that hampered the sector´s growth.

After this major political agreement was reached, core and fundamental aspects were discussed and agreed upon for a change, and so, a truly significant reform was implemented and the decree was issued on December 2013. It amended articles 25, 27 and 28 of Mexican Constitution and 21 transitory provisions that set forth the legal framework for secondary legislation. Pursuant to this decree and after a long time of debate and discussion by Mexican Congress, ,on August 12, 2014, key legislative and regulatory developments (nine new bills and amendments to many other laws) were finally enacted and became effective as implementing laws of the energy reform.

The said energy reform sets out very significant changes to transform Mexico into a competitive and worthy of investment country. In this regard, the constitutional amendment aims to attract the private sector (domestic or foreign) to participate and compete in the upstream, midstream and downstream activities. Although the Mexican State still holds the hydrocarbons property (liquid, solid or gaseous in the subsoil) and continues to be in charge of the "strategic activities"(such as the exploration and exploitation of oil and other hydrocarbons, radioactive minerals, nuclear energy production; planning and controlling the National Electric System and the public service of transmission and distribution of electricity), the law also states that the State will foster and protect economic activities carried out by the private sector and that it will provide the adequate conditions to include the privates in the national development.

In order to do so, the Nation is entitled to perform oil and other hydrocarbons exploration and exploitation activities through allocations to the so-called "productive state-owned companies" (abbreviated to EPE in Spanish) or through contracts granted by competitive bid rounds (joint ventures or joint operating agreements) or with private companies.

Could You Point Out The Most Relevant Aspects Of The Energy Reform?

Many aspects are being introduced but it is noteworthy the opening for private investment in the upstream activities, in which a flexible contractual regime is being implemented. This regime is based on international contractual models that have proved to be the most adequate for the host country and for the contractors. These models include the following:

  1. Service contracts. Where the contractor is entitled to cash payments for rendered services,
  2. Shared profit agreements. In which the contractor is entitled to receive a percentage of the profit,
  3. Shared production agreements. Where the contractor is entitled to receive a percentage of the production taking into account that the risk investment will be taken up by the contractor,
  4. License agreements. In which the contractor is entitled to hydrocarbons through the onerous transmission once these have been extracted from underground, and finally,
  5. Any combination from the above. The law calls for a minimum national content percentage requirement to promote the supply chain. The "national treatment rule" is applicable as well in accordance with the international treaties and commercial agreements signed by Mexico.

Since there has to be a balance between the best interest of the Nation and an adequate investment environment, several regulatory bodies were strengthened in the reform, while other bodies were created. These aim for the transparency and legality of every contract or assignment, for every bidding process, and for all the regulated activities. Therefore it is provided that external audits are carried out, as well as disclosure of considerations and contract clauses, among other measures. The reform guarantees the transparency principle in bidding processes and contract awards within the oil and gas industry, and also establishes external audits regarding accounting and the recovery of costs incurred related to the contract.

How are the regulatory bodies strengthened?

As a main objective, these agencies are vested with more attributions than those in the past. The National Hydrocarbons Commission (abbreviated to CNH in Spanish) will provide technical assistance to the Energy Ministry (SENER in Spanish) when determining assignments, migration of assignments to contracts, conduct competitive bid rounds as well as the supervision and regulation of upstream contracts, evaluation of exploration and development plans.

For midstream and downstream activities, the Energy Regulatory Commission (abbreviated to CRE in Spanish) will provide services as the issuance and administration of permits, authorizations, and contracts related to oil, gas (storage, transportation and distribution by pipelines), petroleum products and petrochemicals. It will also provide technical assistance to SENER, conduct tender processes, and enact regulation among other attributions.

Respectively, the Senate, previous proposal by the President, will appoint CNH and CRE commissioners and furthermore, two new commissioners will be appointed to each Commission (this marks an increase from 5 to 7 Commissioners).

What are the main characteristics of the newly created bodies?

  • The National Hydrocarbon Agency for Industrial Safety and Environmental Protection has been created to regulate and supervise activities related with industrial safety and environmental protection in hydrocarbon sector. Companies will be required to comply not only with industrial safety but also for an efficient use of energy and natural resources.
  • The Mexican Oil Fund for Stabilization and Development has been created to receive, administer and distribute income that derives from E&P activities being carried out by assignments and contracts. It is a public trust whose trustee is the Mexican Central Bank. The purpose of this Fund is to procure public finances stability; invest on long term savings, in science and technology, as well as renewable energies; create new investment vehicles specialized in oil projects; among others.
  • And finally, twelve months after the enactment of the Hydrocarbon Law (secondary legislation), the National Center for Natural Gas Control (CENEGAS) shall be established to own and operate Pemex´s gas transmission pipeline and storage facilities and its contracts. It will also be an independent operator of the National System for the Integrated Transportation and Storage of National Gas.

After the long awaited approval of the Energy Reform in Mexico, which do you think will be the main challenges to be faced?

The energy reform is comprehensive and it calls for the end of the 75-year monopoly held in the oil and gas industry by Pemex, and the power generation monopoly held by the CFE. This implies opening Mexico´s potential capacity with new players and new rules.

This reform allows private investment in the entire value chain of Mexico´s resources and very importantly, opens this possibility in the upstream activities. The way in which the guidelines for bidding rounds are designed, the economic and tax conditions set in contracts and the transparency of the rules and institutions will all be crucial for the ultimate objective of bringing investment in the energy sector. It addresses, at many levels, the change in structures, practices and general policies.

Originally published by www.lawer-monthly.com.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Rodríguez Dávalos Abogados
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Rodríguez Dávalos Abogados
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions