On October 31st, 2014, a decree amending, adding and repealing several provisions to supplement the legal framework in matters of oil, gas and electricity was enacted. These provisions include, among others, the following new regulations of the laws implementing the Mexican Energy Reform:
- The regulations on the Hydrocarbons Law.
- The regulations on the Hydrocarbons Law in matters related to mid and downstream activities.
- The regulations on the Electric Industry Law.
- The regulations on the Law of Hydrocarbons' Revenue.
- The organizational structure regulations of the National Agency of Industrial Safety and Environmental Protection in the Hydrocarbons Sector (the "National Agency").
- The regulations on the laws of PEMEX and CFE.
- Guidelines for the issuance and acquisition of Clean Energy Credits regulated under the Electric Industry Law.
Please find below the key topics detailed in these regulations.
Oil & gas
Exploration and Production ("E&P") Contracts. Every five years, the National Hydrocarbons Commission ("CNH") will determine which zones may be subject to assignment by means of an E&P contract; additional zones may be included upon request by interested third parties. The first five-year plan will be published during the first semester of 2015.
E&P contracts will be awarded by means of a public tender process. The invitation to bid may provide for (i) the assignment of several E&P contracts and zones in the same process, and (ii) the possibility of one single entity bidding for one or several zones in the same process.
Grants (Asignaciones). The grants awarded to state productive companies may be transformed into E&P contracts to be executed with the CNH, upon authorization from the Ministry of Energy. An E&P contract will entitle the state productive companies to partner-up with private entities.
Permitting. Permits for midstream and downstream activities will be issued for a term of up to 30 years and may be extended in one occasion for half of the effective period for which they were originally granted. Any party with interest –even a party that is not related to the permit holder- may request the issuance of a new permit one year before the expiration of the corresponding permit. Permits will be issued for a determined facility, and for a determined production or storage capacity.
The Energy Regulatory Commission ("CRE") may unilaterally modify a permit when its original conditions do not meet the required services or when the security, efficiency, regularity, quality and continuity of the services are affected.
CRE will issue general rules to provide specific obligations for each permit, general conditions to render the services, and regulations on tariffs and fees, among others.
Compression and decompression. Entities that are not part of a pipeline operation system will require a specific permit to operate compression and decompression systems.
The possibility to hold permits to perform several activities at the same time (compression, decompression, liquefaction and regasification), will be determined in the general rules issued by CRE.
Open access. Transport and distribution through pipelines and storage will be subject to open access conditions based on the availability in their systems and facilities. CRE will issue general rules to detail the foregoing, including contracting models, open seasons and number of participants.
Permitting. The proceeding and requirements to issue permits is detailed in the Regulations of the Electric Industry Law. Permits to generate or supply electricity will be issued for a maximum term of 30 years.
Open access. CRE will issue general rules to detail the proceeding to connect to the National Grid and the information that carriers must make public in connection with their system's capacity.
Supply rates. These rates will be subject to a maximum threshold set by CRE; however, suppliers may reach agreements or establish discounts under the principles of generality and no discrimination.
Market rules. The aforementioned regulations provide that these rules will include, among others, the Proceedings to carry out purchase transactions, the methodology to price the goods sold in the Wholesale Market, the proceedings of programs for extending and modernizing the National Grid, and the security that participants must provide.
Procurement by CFE and PEMEX
Administrative appeals. The proceeding to file and rule on an administrative appeal in matters of procurement by CFE and Pemex is detailed in their corresponding regulations. This motion will be resolved by a collegiate body within CFE or Pemex. The awarded agreement may not be executed until the period to file a motion of appeal has elapsed.
Industrial safety and environmental protection
Structure. The National Agency will be managed by an Executive Director, who will be assisted by a Technical Council and a Scientific Committee. The National Agency will be organized into seven administrative units or offices, each of them reporting to the Executive Director.
For all practical purposes, the National Agency will be open to the public as from March 2nd, 2015. Until then, the Ministries of Environment and Natural Resources and of Energy, as well as CRE and CNH, will continue to process and resolve all matters under their jurisdiction pursuant to the former laws.
Permitting. Key to the permitting process for the regulated activities of the oil and gas sector are two administrative units: (i) the Industrial Management Unit and (ii) the Commercial Inspection, Surveillance and Management Unit.
The Industrial Management Unit will be in charge of processing the following environmental permits: environmental impact and risk authorizations; forestry use of land change authorizations; odor, gas, solid or liquid particles emissions into the atmosphere; hazardous waste handling and final disposal services, including import and export of hazardous wastes; registration of waste management plans; authorization of proposals for remediation of site contamination; permits for the release of genetically modified organisms for bioremediation purposes, and special handling waste authorization; except for those related to the distribution and retail sale of natural gas, liquefied petroleum gas and other petroleum-based products, which will fall under the jurisdiction of the Commercial Inspection, Surveillance and Management Unit.
Inspection and Surveillance. As a novelty, third parties (not public servants or pertaining to the public administration) will be able to assist, subject to a previous authorization by the National Agency, in surveillance and inspection tasks, previously undertaken by the Attorney General's Office for the Protection of the Environment and now under the jurisdiction of the National Agency.
Clean energy credits
Trading. Clean energy credits may be purchased by means of Power Coverage Agreements or in the Wholesale Open Market in terms of the Market Rules. One clean energy credit will be granted to generators per each MW/h of energy they produce.
Obligation. Suppliers, qualified users participating in the Wholesale Market, self-supply final users, and holders of a grandfathered interconnection agreement whose load points do not consume energy generated by a clean source must acquire clean energy credits in proportion to their consumption of energy.
The social impact assessment will be a requirement to obtain permits or authorizations to carry out infrastructure projects in the electricity and hydrocarbons industries.
Social impact assessment. The social impact assessment must be carried out and filed with the Ministry of Energy for its approval before starting negotiations to secure a project's land rights.
In the case of the hydrocarbons' sector, the compliance with the resolution and recommendations issued by the Ministry of Energy in connection with the social impact assessment will be a requirement to begin activities.
Indigenous consultation. The Ministry of Energy must undertake a consultation proceeding regarding projects that are located within indigenous communities or towns, along with the Ministry of Interior and the National Commission for the Development of Indigenous People.
This proceeding must include the following phases: (i) consultation plan, (ii) agreements meeting, (iii) information meeting, (iv) consultation stage, (v) decision-making stage, and (vi) follow-up.
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.