Today, Mexican President Enrique Peña Nieto announced the promulgation of the six secondary laws packages passed by the Mexican Congress last week to implement the most ambitious energy reform in Mexico since the oil industry nationalization in 1938 (available here). This Client Alert provides commentary regarding the overall significance and context of this event in connection with the Mexican oil and gas industry.
After an extensive process that began in April 2014, Mexico has completed the second most important step in carrying out the opening of its energy industry to private investment. A three-month discussion in Congress followed the December 2013 Constitutional amendment and has resulted in the passing of a new legal framework that includes the Hydrocarbons Law, the Hydrocarbons Revenues Law, new laws for both Petróleos Mexicanos (“Pemex”) and Comisión Federal de Electricidad (“CFE”), an Electric Industry Law, and a Regulating Agencies Law, among others.
Even though the passing of the secondary laws represents a significant step in Mexico’s energy industry opening process, a set of administrative regulations, guidelines, criteria, and other implementing actions needs to be finalized before any projects may begin. Some of the pending regulations include the Hydrocarbons Law Regulations, the regulations for activities subject to permitting by the Comisión Reguladora de Energía (“CRE”) and the guidelines to transfer all geologic information from Pemex to the oil and gas regulator, the Comisión Nacional de Hidrocarburos (“CNH”). Equally relevant and parallel to the ongoing process to finalize the sector’s new legal framework, industry participants should also be aware of the “Round Zero” process (whereby Pemex requested the Secretaría de Energía (“Ministry of Energy”) to directly award to it specific oil and gas projects). In addition to identifying future business opportunities for industry participants, this action is particularly important as it will be the first true submission by Pemex to the authority of the CNH. The Ministry of Energy and the CNH will review Pemex’s request and grant or deny those awards by September 17, 2014 (although an accelerated calendar was also announced today to complete many of these tasks before the official deadlines). Other implementation challenges include the creation of new government regulatory agencies with specific authority with respect to the hydrocarbons sector (for example, the National Agency of Industrial Safety and Environmental Protection for the Hydrocarbon Sector), and the issuance of a host of rules and mandates to strengthen the oil and gas regulators, namely the CNH and the CRE.
While implementing details are still to come, we intend to keep you informed as this historic process plays out. The newly approved legal framework opens the door to a deep structural change affecting (i) the Mexican oil and gas sector, (ii) the role of Pemex, and (iii) the granting instruments and process historically used in Mexico.