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The Energy Reform in Mexico: Reviewing the Secondary Statutes Supporting the Energy Reform

March 10, 2014
The Energy Reform in Mexico: Reviewing the Secondary Statutes Supporting the Energy Reform

On April 30, 2014, the President presented the specific federal statutes that will govern the implementation of recent constitutional and legal reforms to Mexico’s energy sector. Such statutes are pending enactment in Mexico’s Congress and are required to complete the implementation of the historic constitutional energy reforms adopted in December 2013. The proposed secondary legislation includes nine initiatives that would either create or substantially reform 21 different Mexican federal laws. Although the three-month term established by the transitory constitutional articles for the approval of such pending statutes was not met, the resulting proposal has the benefit of being the product of rigorous technical work, which can serve as a good starting point for parliamentary deliberation and public debate.The transitory constitutional articles adopted last December were very detailed and outlined the main issues of the regulatory framework for the new Mexican energy sector. Consequently, this discussion will focus on thedetails of the new federal statutes and other rules deriving from such. At this time, at least the following is known:* In the hydrocarbon sector, Mexico will have a transparent bidding process for awarding exploration and petroleum contracts for oil and gas; there will be a market for natural gas in which Petróleos Mexicanos (Pemex) can no longer monopolize the sale of the product and its transportation; the private sector may engage in oil refining and natural gas processing; gasoline and diesel may be sold at service stations under other brands and freely imported following a transition period that will last 5 years; and an industrial safety and environmental protection agency will monitor the application of best international practices in this sector.* In the electricity sector, a market will be created for the generation and sale of electricity, managed by the National Center for Energy Control (Centro Nacional de Control de Energía, CENACE) functioning now as an independent body that is separate from the Federal Electricity Commission. CENACE will be responsible for operating the network for transmission and distribution of electricity with open access and in a non-discriminatory manner; a system of certification for clean energy will be established and the regime will facilitate the inter-connection of renewable sources; and specific rules will be established for the use of geothermal resources in Mexico through exploration permits and production licenses.* On an institutional level, the National Hydrocarbon Commission and the Energy Regulatory Commission will be strengthened as regulatory bodies, given that they will not form part of the Department of Energy, and will have financial self-sufficiency and rules of transparency and accountability in their performance. Pemex and the Federal Electricity Commission will cease to be government controlled entities and will become “productive state enterprises” to allow for operational flexibility.Parliamentary coordinators in the Mexican Senate announced that the legislative initiatives will be discussed and approved during a special session to be held in the last weeks of June. We hope that in the coming weeks Mexican legislators perform a thorough analysis of the proposed new federal laws in order to yield the best possible energy regulatory framework for Mexico.

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