At A Glance
Mexico has announced a proposed series of reforms to its energy sector. One such reform is the establishment of a new National Energy Commission under the direct control of the Mexican executive branch, replacing independent regulators. This Legal Update examines the regulatory framework under the proposed reforms and their expected impact on international and domestic investors.
THE CHANGES
The following changes represent a substantial departure of the current system:
Mexicohas announced a proposed series of reforms to its energy sector (the "Reform"). The Reform includes the National Energy Commission Law, which establishes a new National Energy Commission (Comisión Nacional de Energía, "CNE"), that will be controlled by the Mexican executive branch through the Ministry of Energy. The CNE will replace the Energy Regulatory Commission ("CRE") and National Hydrocarbons Commission ("CNH") as regulators of the energy sector and the new law will repeal the Law of Coordinated Regulatory Bodies in Energy Matters (Ley de los Órganos Reguladores Coordinados en Materia Energética). The Reform will impact investors, as the energy sector in Mexico will no longer have independent regulators and the CNE will control permits, the supervision and enforcement of sanctions, and the issuance of new regulations applicable to power, oil and gas activities.
This note summarises: I. the regulatory framework; II. the rules after the Reform; and III. the impacts on international and domestic investors. Understanding the potential changes is important for planning and safeguarding interests across new and ongoing energy projects.
regulatory framework
- The energy sector is regulated by two independent regulators: the CRE and the CNH.
- The CRE and CNH are granted technical, operational, and management autonomy (including budgetary independence). Commissioners of CRE and CNH can only be removed on strictly defined legal grounds.
- CRE is in charge of issuing permits for (i) the commercialisation and generation of electricity; (ii) the commercialisation of petrochemicals and oil products; and (iii) the transport, distribution and storage of hydrocarbons. In addition, CRE establishes the methodologies to calculate the transmission tariffs within the power sector.
- The CNH handles upstream contracts such as licence contracts and production sharing contracts.
RULES AFTER THE REFORM
- CNE will regulate the energy sector. A General Director and a Technical Committee will be appointed to lead and administer the CNE.
- Mexico will no longer have an independent energy regulator, as the CNE will become part of the Ministry of Energy. The Mexican President will have the authority to remove the General Director and the Technical Committee at will.
IMPACTS ON INTERNATIONAL AND DOMESTIC INVESTORS
- Following the reform, the CNE's decisions regarding energy regulation, sanctions, and permit issuance may be susceptible to pressure by the Mexican President, raising concerns over politicised outcomes.
- Of particular importance to investors, the CNE will (i)
regulate energy (power and hydrocarbons) activities; (ii) enforce
sanctions for violations of the new energy laws; (iii) manage
permits (granting, modifying, revoking, and supervising); and (iv)
request information from power generators and their partners.
Given the far-reaching consequences of the proposed Reform, stakeholders should conduct a thorough legal, financial, and operational assessment of its potential impact. With legislation still pending, there is a brief window to anticipate disruptions and protect investments, especially as the Mexican energy sector transitions from independent regulatory bodies to a centralised oversight model.
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