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

August 12, 2014
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 thetransportation, storage and distribution of gas through what was then a new permits’ regime. In 2008, a bill byPresident Calderón proposed that, in accordance with the Hydrocarbons Law relating to gas, permits could alsobe granted for conduction through pipelines, and the storage related to such or to import terminals, for basicpetrochemicals and refined products. Naturally, the regulatory agency for these infrastructure networks would bethe Energy Regulatory Commission (Comisión Reguladora de Energía, CRE). The strange consensus that led tothe 2008 reform resulted in useless legislation, given that the activities described above were included as subjectto 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 totechnical regulations through the Federal Law of Metrology and Normalization, but such were not subject torequirements and sanctions contained in the Hydrocarbons Law, given that these were only applicable to thoseentities holding permits under the prior legal regime. This was the CRE’s interpretation in ResolutionA/001/2012 dated January 16, 2012.The legal uncertainty caused by this peculiar arrangement hampered the intent to create an industry allowing forthe participation of private parties in such sectors, which would have resulted in greater economic efficiencygiven that the costs of using pipelines to transport liquid and gas fuels are much lower than using wheeledmethods 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 tothe legal framework, among others, in order to grant to the CRE the authority to regulate and grant permits for thestorage, transportation and distribution of petroleum, petrochemicals and refined products, including third partyopen access to such infrastructure.In accordance with such mandate, the Hydrocarbons Law published in the Official Journal of the Federation onAugust 11 has the intent, among other activities, to regulate the transport and storage of petroleum, thetransportation, storage and distribution of refined products (such as gasoline, diesel, fuel oil, and liquefiedpetroleum gas or “propane”), and the transportation through pipelines and storage of petrochemicals related tosuch.The performance of any of these activities will require a permit from the CRE. During its review of the permitapplication and potential granting of the permits for transportation through pipelines or storage, the CRE mayanalyze the impact on the efficient development of such activities and the common infrastructure needs in theapplicable region, with the ability to require that such facilities operate under open access conditions and feeregulations. Of course, permit holders that render services to third parties will do so at all times granting openaccess that is not unduly discriminatory, subject to the available capacity in their systems. Furthermore, thetransportation systems through pipelines and the storage of refined products and petrochemicals that areinterconnected may form integrated systems operated by independent managers to increase coverage and providesystemic 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 thanDecember 31, 2015, for oil and fuels’ pipelines, storage and distribution terminals, and other similarinfrastructure.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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