Mexico Update: CONSTITUTIONAL AMENDMENT ON ENERGY

On October 1^st, 2021, an initiative (the “Initiative”) was filed in the House of Representatives (Cámara de Diputados) with a project to amend articles 25, 27, and 28 of the Political Constitution of the United States of Mexico (la Constitución Política de los Estados Unidos Mexicanos, the “Constitution”).

It is important to note that an amendment to the Constitution like the one proposed through the Initiative, requires the following majorities:

                1.- Two-thirds of the votes in the Lower House and the Senate (Cámara de Senadores).

                2.- The majority of the legislatures of the States and Mexico City.

Considering the aforementioned, the President´s Party (Morena) and its allies (PT and Partido Verde) which have 277 house representatives and 74 senators, will require 53 votes of house representatives of the opposition and 10 votes of senators of the opposition. Regarding the Legislatures, they hold 19 and need only 17.

The Initiative seems to have as its purpose, (i) that the Federal Commission of Electricity (Comisión Federal de Electricidad “CFE”) returns to its previous status as a monopoly in the area of electricity, (ii) that the Energy Regulatory Bodies (Órganos Reguladores en Materia Energética) cease to exist, and (iii) make exploitation of lithium a monopolist activity of the Estate.

The principal effects with regards to the CFE that we foresee in the event that the Initiative is passed are the following:

• The Energy National Control Center (Centro Nacional de Control de Energía “Cenace”) will once again be a part of the CFE.
• The CFE will become a decentralized entity, instead of a Productive Company of the Estate (Empresa Productiva del Estado).
• The subsidiaries of the CFE will cease to exist.
• The Electricity Generation permits and Self-supply permits will be terminated and the CFE will control all purchases of electricity.
• The CFE will once again be the only seller of electricity in Mexico.
• The CFE will stop purchasing exceeding production of electricity from the Independent Producers.
• The transmission and distribution tariffs will be unilaterally decided by the CFE.    

Other effects we foresee from the passing of the Initiative, are the following:

• The disappearance of the Electricity Regulatory Commission (Comisión Reguladora de Energía “CRE”) and the National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos “CNH”).
• Clean Energy Certificates (Certificados de Energía Limpia “CELs”) will cease to exist, and such a situation will have negative consequences for the environment and possible breaches by Mexico of environmental international treaties.
• Possible breaches by Mexico to international treaties such as the United States–Mexico–Canada Agreement or USMCA.
• The exploitation of lithium will be an activity reserved for the Estate.

In the event that the Initiative is passed, it is probable that it will be fought in Courts by individuals, political parties, and/or independent bodies. The aforementioned is due to the anticompetition nature of the Initiative, as well as violations to the international treaties previously mentioned, which under the Mexican law system have the same hierarchy as the Constitution.

Furthermore, it is probable that the Initiative brings forth retaliations in the area of international commerce by Mexico´s commercial partners, as well as possible international litigations derived from lawsuits filed by international companies whose investments in Mexico are impaired. We shall keep informing with respect to the process of amendment to the Constitution derived from the filing of the Initiative.

By L. ALBERTO BALDERAS FERNÁNDEZ, DAVID HURTADO BADIOLA & ALEJANDRO CREEL YSITA, Jáuregui y Del Valle, S.C., Mexico, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact mexico@transatlanticlaw.com

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