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Legal updates - Private Investment in Pipelines and Storage Facilities for Petroleum, Petrochemicals and Refined Products

June 10, 2014
Legal updates - Private Investment in Pipelines and Storage Facilities for Petroleum, Petrochemicals and Refined Products

The 1995 Mexican energy reform legally allowed the private sector to participate in activities such as the transportation, storage and distribution of gas through what was then a new permits’ regime. In 2008, a bill by President Calderón proposed that, in accordance with the Hydrocarbons Law relating to gas, permits could also be granted for conduction through pipelines, and the storage related to such or to import terminals, for basic petrochemicals and refined products. Naturally, the regulatory agency for these infrastructure networks would be the Energy Regulatory Commission (Comisión Reguladora de Energía, CRE). The strange consensus that led to the 2008 reform resulted in useless legislation, given that the activities described above were included as subject to regulation by the CRE, but no amendments to the Hydrocarbons Law ever took place.Consequently, the 2008 reform failed as it was never completed (through secondary legislation) and, therefore, private projects could not obtain financing as they lacked a clear and binding legal regime regulating them. Activities that were “regulated but not subject to being permitted”, a coined term then, would be subject to technical regulations through the Federal Law of Metrology and Normalization, but such were not subject to requirements and sanctions contained in the Hydrocarbons Law, given that these were only applicable to those entities holding permits under the prior legal regime. This was the CRE’s interpretation in Resolution A/001/2012 dated January 16, 2012.The legal uncertainty caused by this peculiar arrangement hampered the intent to create an industry allowing for the participation of private parties in such sectors, which would have resulted in greater economic efficiency given that the costs of using pipelines to transport liquid and gas fuels are much lower than using wheeled methods such as trains and trucks.Fortunately, this problem was finally resolved with the December 2013 constitutional reform on energy. In fact, the Tenth Transitory Article, Section c) of the reform decree ordered Congress to make the necessary changes to the legal framework, among others, in order to grant to the CRE the authority to regulate and grant permits for the storage, transportation and distribution of petroleum, petrochemicals and refined products, including third party open access to such infrastructure.In accordance with such mandate, the Hydrocarbons Law published in the Official Journal of the Federation on August 11 has the intent, among other activities, to regulate the transport and storage of petroleum, the transportation, storage and distribution of refined products (such as gasoline, diesel, fuel oil, and liquefied petroleum gas or “propane”), and the transportation through pipelines and storage of petrochemicals related to such.The performance of any of these activities will require a permit from the CRE. During its review of the permit application and potential granting of the permits for transportation through pipelines or storage, the CRE may analyze the impact on the efficient development of such activities and the common infrastructure needs in the applicable region, with the ability to require that such facilities operate under open access conditions and fee regulations. Of course, permit holders that render services to third parties will do so at all times granting open access that is not unduly discriminatory, subject to the available capacity in their systems. Furthermore, the transportation systems through pipelines and the storage of refined products and petrochemicals that are interconnected may form integrated systems operated by independent managers to increase coverage and provide systemic benefits for the safety, continuity, quality and efficiency of rendering these services.Given these changes, Pemex must apply for and obtain the corresponding permits from the CRE no later than December 31, 2015, for oil and fuels’ pipelines, storage and distribution terminals, and other similar infrastructure.In the upcoming years, we will see new terminals in Mexico for the import of gasoline and diesel on the U.S. border; pipelines that transport jet fuel to airports, or ethane to plants that manufacture raw materials for plastics; and pipelines that transport crude oil from platforms to refineries located along the coasts of the Gulf of Mexico. This entire infrastructure should provide beneficial conditions for the vigorous growth of the Mexican economy.

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