Issue #
August–September 2019

Listen to this issue

The CCN Mexico Report™ is now available in audio format. Listen to the podcast and follow us on Spotify or wherever you get your podcasts.

Economic Indicators

On October 9, 2019, updated financial indicators reflected:

Peso/Dollar Exchange Rate: $19.5689 pesos per Dollar.

Mexican Stock Exchange: The Mexican Stock Exchange (BMV) closed at 42,466.05 points.

Interest Rates: The Average Interbank Rate (TIIE) for a 28-day period was at 8.0050%

There Is, In Fact, Life After Mexico’s Electricity Auctions

October 8, 2019

At the end of January of this year, Mexico’s National Energy Control Center (“CENACE” for its acronym in Spanish) decided to cancel the fourth long-term auction that would have allowed CFE Basic Services Suppliers and other interested suppliers to acquire electricity, capacity and clean energy certificates ("CEL," for its acronym in Spanish) at the wholesale level. This decision hit the national energy sector, particularly those companies that develop power plants, like a bucket of cold water.The decision was directed by the Secretary of Energy and motivated by the current prevailing ideological rejection by the new Mexican federal administration of the generation of electricity by private companies, particularly foreign companies. It did not matter that the Electric Industry Law explicitly provides that auctions organized by CENACE are the only means by which basic suppliers may enter into electricity hedge contracts. Nor did it seem to matter that lower prices were obtained in each of the three prior auctions, owing primarily to fierce competition. This was particularly true in the third auction, in which an average unit price of $20.57 dollars was achieved for the package of electricity and CEL, with a minimum of $17.70 dollars, which broke the prior world record low price. The government also ignored the fact that the more than 60 power plants with assigned contracts will create up to 200,000 direct and indirect jobs and approximately $60 billion dollars in investments over the next 15 years.In the midst of this landscape, and after a few perplexing months of uncertainty, the electricity industry has reacted with creativity and optimism. The fact that the Mexican government has sought not to organize the electricity auctions, which it is obligated to hold, has not prevented other players from organizing similar competitive processes. Demand will continue to grow as the economy grows, and generation companies are still eager to meet such demand, despite all that has taken place recently.For example, consultants from Bravos Energía, who are the talented former public servants who designed the wholesale electricity market during the prior administration, have put on the table a long-term electricity "contest" so that various load serving entities can acquire electricity, capacity and CEL by means of contracts for 5, 10 or 15 years. Their proposal features the participation of a clearinghouse, as well as interesting ideas to address the risks of congestion and deviations in renewable generation. The contest was announced in June, at an event where more than 200 people attended. Organizers and stakeholders agree that one of the challenges will be to convince a significant number of qualified end users to take advantage of the supply that results from this contest.In recent years, energy trading giant Vitol has shown interest in becoming a major player in the Mexican electricity market through its active participation in organizations such as the Energy Traders Association (“ACE,” by its Spanish acronym) and by recruiting high-level local talent. Earlier this month, Vitol held an event to present its long-term “private procurement process,” with the support of the EY consulting firm. Expectations are that the confidence inspired by this large company’s actions will encourage developers to try to sell their products by means of this new mechanism, and that Vitol, as a non-supply marketer, will consolidate itself as a major supply aggregator that brings liquidity to the market and uses contracts with independent qualified suppliers to serve end users.Additionally, despite enormous challenges in achieving agreements negotiated directly and freely between generators and suppliers, there have already been several instances of successful negotiations. Undoubtedly, the struggle is to balance the generators’ and the suppliers’ needs for long-term contracts, with the end users’ preference not to commit for a long time period, as well as mitigating credit risks of all parties involved. Finally, several companies are exploring the opportunities of isolated supply and its sister figure, local generation, to develop projects that can, based on their scale, continue to meet their desired returns, without having to go through the market. These “behind-the-fence” or "behind-the-meter" solutions result in what could be compared to a marriage between the generator and the end user, with the advantages and disadvantages that such a relationship involves.One hopes that the government will soon reconsider and understand that no corruption has occurred in prior electricity auctions and that if some projects resulting from such procedures have not been able to materialize, the rules can be perfected so that only the most serious and advanced projects win. CFE cannot afford to discard an instrument that allows it to achieve cheap and clean energy, which is exactly what the people of Mexico desire. Meanwhile, as you can see from the discussion above, life goes on after the auctions, especially for those parties who in good faith desire to invest in Mexico’s growing electricity sector.

New Regulations to Protect Domestic Employees

September 11, 2019

On July 2nd, 2019 Mexico’s Federal Labor Law (the “FLL”) and Social Security Law (the “SSL”) were amended to include provisions designed to protect domestic employees working in Mexico. The most relevant aspects of the amendments are summarized below:

  1. The FLL defines domestic employees as those who provide care services, cleaning, assistance or any other activity within an employer’s residence, and such arrangement does not produce a financial benefit to the employer. Domestic employees may reside inside or out of the employer’s home, or they may work for different employers and not reside at any of them.
  2. Individuals who perform household work on an occasional or sporadic basis or who provide cleaning services, assistance, customer service and other similar activities in hotels, care homes, restaurants, bars, hospitals, schools, boarding schools and other similar establishments are not considered to be domestic employees.
  3. It is illegal to hire children under 15 years of age, and special rules apply to household employees between the ages of 15 and 18.
  4. A written employment contract is mandatory.
  5. Employees who reside in the employer’s home must be allowed to rest a minimum of nine consecutive hours at night, and at least three hours between morning and evening duties, without exceeding eight hours per day.
  6. Domestic employees shall have at least one and a half days per week off, preferably on Saturday and Sunday. Per agreement between of the parties, half days may be accumulated every two weeks, but employees must always be allowed to have at least one full day off every week. Further, domestic employees must be allowed to be off work on legal holidays.
  7. Employers must provide food and housing to domestic employees who reside at the same address where they work. Such domestic employees are also entitled to vacation and vacation bonus pay, and a holiday bonus, paid weekly days off and enrollment in the national health system operated by the Mexican Social Security Institute.
  8. Wages may be paid by direct deposit with consent from the employee. The National Minimum Wage Commission establishes the minimum wages that must be paid to domestic employees.
  9. Domestic employees may terminate their employment by giving notice to the employer at least eight days in advance. The employer must also provide at least eight-days’ advance notice to dismiss a domestic employee and pay the departing employee legally mandated severance as set forth in Articles 49 fraction IV and 50 of the FLL.

Guidelines to enroll domestic employees with the Mexican Social Security Institute are expected to be released soon. In the meantime, if domestic employees are not enrolled in such agency, employers will remain liable for medical expenses, paid leave and other services provided by the Social Security Institute.

Calculating Overtime Pay in Mexico

August 29, 2019

The Ninth Collegiate Tribunal of the First Circuit for Labor Matters recently published opinion number I.9o.T.67 L (10th), entitled: “Overtime. Time which an employee, on his/her own initiative, spends preparing to perform work, commuting to the workplace, or performing any other activity in order to be able to render services, shall not be considered overtime, unless such has been agreed to by the employer.” In its opinion, the Court concluded that the time spent by an employee "in preparing to perform work, commuting to the workplace, or performing any other activity in order to be able to render services," without the employee being subject to the employer’s control, may not be considered overtime under Mexican labor law, and that to insist otherwise would mean that an employee could decide on his/her own to accumulate overtime without being subject to the employer's control, when in fact overtime is the extension of normal working hours in which the employee continues to be subject to the employer’s control. Accordingly, all employers should verify the employment conditions they have agreed to with their employees to determine on a case by case basis whether overtime applies.