Mexico Update: MAIN ASPECTS OF THE DECREE AMENDING THE HYDROCARBONS LAW

This year, the process for the approval in the Chambers of Deputies and Senators of the draft decree that reforms and adds various provisions of the Hydrocarbons Law has been concluded.

Background

1.The Hydrocarbons Law was published in the Official Gazette of the Federation on August 11, 2014 and its last modification dates from November 6, 2020; this Law and its Regulations have allowed that in the hydrocarbons sector the opening and transformation of this market in our country will be carried out.

2.Although, like all positive law and according to the circumstances to achieve sustainable, productive and efficient development, several of its provisions could be reformed so that a balance is achieved between the rights and obligations derived from authorizations or permits for the exploration, extraction and commercialization of hydrocarbons and by the State to continue safeguarding the direct ownership of said resources, thus complying with the legal framework and the International Treaties to which Mexico is a party.

3.Derived from the tendency of the Federal Government, its National Development Plan 2019-2024, in its “Political Axis and Government” to radically modify and in the opposite direction the legislation of the Energy Reform, with manifestations such as “Safeguard the interests and National Security”, “Eradicate corruption, waste and transfer of public goods and resources to individuals”; is that again on March 26, 2021, I sent to the Chamber of Deputies the decree of reform to the Hydrocarbons Law.

4.The Energy Commission of the Chamber of Deputies issued its opinion and the full session that these Deputies had on April 14, 2021, was approved in general this initiative, making reservations that from the legal point of view do not manage to correct the violation of the rights of individuals, if approved in this regard. Now that this initiative has also been approved in the Senate Chamber, only its execution and publication in the Official Gazette of the Federation for its entry into force is pending.

Reasons for the Reform Initiative:

1.It is proposed that through the reform of articles 51,53, 56, 57,86, of the Hydrocarbons Law, certain items be strengthened such as: (i) the minimum storage of petroleum products, (ii) before the administrative silence of the authority instead of the fictitious affirmative operating, it be changed to the fictitious refusal regarding the granting of permits or applications before the CRE or SENER, (iii) the permits granted in the event of recidivism in the breach of the various provisions of the Law are revoked, (iv) combat fuel smuggling and (v) the suspension of permits for imminent danger to national security, energy security or the national economy.

2.The addition of section III of article 51 of the Hydrocarbons Law, so that at its discretion the Ministry of Energy (“SENER”), determines that, in the absence of storage capacity, it may revoke both the permits that it authorizes, as well as those that are currently complying with the provisions such as the Public Policy of Minimum Storage of Petroleum products that dates from December 12, 2017 and modified on December 6 2019; this not only generates legal uncertainty for permittees, but for all participants in the hydrocarbon, petroleum and petrochemical market chain, thereby violating the acquired rights of individuals, without any legal justification.

3.The modification of articles 53, 57 and a new article 59 Bis, would allow an extension in the discretionary powers of SENER and the Energy Regulatory Commission (“CRE”), so as not to resolve expeditiously the authorizations or permits to assign the rights of the permittees, since in the face of administrative silence, it will now be considered as a fictitious refusal, to temporarily or permanently suspend or revoke the permits and in any case of occupation or intervention and now the addition of the suspension, the authority for the purpose of continuing with the operation, may hire productive enterprises of the State instead of third parties, without having to legally substantiate or follow a procedure, since by the mere fact of considering that they imply an imminent danger to national security, energy sovereignty or national economy.

4.In the event of the recidivism of the conducts established in section XII of article 56, with respect to infractions of subparagraphs a) and h) of section II of article 86, in addition to the corresponding sanctions established in the Law, the corresponding permit will be revoked.

5.With respect to the Transitory Articles of the decree, among them, Third, Fourth, Fifth, Sixth, not only reiterate the impact on the acquired rights of individuals, but if approved would imply a frank violation of the constitutional framework and international treaties, given the effects that would be caused by a suspension, revocation and the effects of temporary occupation equated to indirect expropriation, with the entry into force of this reform.

6.The Federal Commission of Economic Competition, published on April 12, 2021, considerations regarding the adverse effects that would be generated to the regime of free competition within the activities of production, import, transport, storage, distribution and sale to the public in the market of hydrocarbons, petroleum and petrochemicals, discriminating without justified causes to individuals against Pemex and other productive companies of the State, it would reduce the number of competitors and an unjustified restriction on supply.

7.In accordance with the provisions of the various legal provisions and specifically in the Amparo Law, if this reform is approved, any permittee or individual who is affected in their rights by it, to combat such affectation could file an amparo and also analyze the corresponding procedure that according to international treaties could be filed to achieve the definitive suspension against said reform and the protection of their investments.

In case of requiring an analysis of the impacts with respect to the decree of reform to the Hydrocarbons Law applied in the different particular cases of the hydrocarbon industry, we reiterate our orders.

By CITLALI PEREZ RENTERIA, 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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