Mexico’s Energy Reform Amendments

by Akin Gump Strauss Hauer & Feld LLP
Contact

[co-author: Chris Treanor]

Background

On December 12, 2013, Mexico’s lower chamber of Congress approved the country’s largest energy reform legislation in more than 75 years.  The proposal ends Mexico’s state-owned monopoly of the oil and gas industry.  Beginning in 1938, Mexicans have recognized Oil Expropriation Day, the day set aside to commemorate the nationalization of the oil industry.  Since that time, the Mexican government, through the Petroleos Mexicanos (“Pemex”), has controlled all oil exploration and production as well as all retail gas stations throughout the country.

Opponents of the historic energy reforms primarily consisted of the leftist group the Party of the Democratic Revolution (PRD).  During more than nine hours of debate on the floor of the Senate on December 11, opponents noted that approximately one-third of Mexico’s federal budget is funded through oil and gas revenue.  All profits from Pemex went directly to the federal treasury.  They also argued that the nation’s resources belonged to all Mexican people and could not be sold to private companies outside of Mexico.

The reform’s greatest proponent was President Enrique Pena Nieto, who took power just over a year ago on a platform of growing the Mexican economy, through a plan that included reforming the nation’s energy industry.  The President’s ruling party, the Institutional Revolutionary Party (PRI), was joined by the conservative party the National Action Party (PAN).  In a surprise move, the ruling alliance reportedly took advantage of procedural maneuvers to avoid sending the bill to committee in the lower chamber and quickly moved for final passage after 40 minutes of debate.

Supporters of the President’s proposed reforms argued that foreign investments were necessary to meet growing demand and to grow the nation’s economy.  In addition, Mexico’s oil production has declined by 25 percent from its peak in 2004 and accounts for just over 2.5 million barrels of oil per day.  The country’s remaining oil reserves are considered vast, but lay primarily in deep waters of the Gulf of Mexico and beneath shale deposits.  Pemex has not developed the technologies necessary to extract these resources without help from foreign companies.

Summary of Reforms

The 295-page reform bill passed by both houses of Mexico’s Congress included constitutional amendments and statutory changes that went far beyond where most observers anticipated.  An earlier proposal from President Pena Nieto would have allowed private companies to enter into profit-sharing contracts with Pemex, receiving cash payments without transferring ownership rights to the resources.  In the current reform, however, private companies will be permitted to contract with the Mexican government independently of Pemex and enjoy some degree of ownership once the oil and gas come out of the well.  The Mexican government will continue to own all resources that remain in the ground, but foreign companies will be allowed to pay royalties and taxes to the government in exchange for ownership rights once the oil breaches the surface.

In addition to opening the Gulf of Mexico and other areas of the country to private exploration and development, the energy reforms include the opening of midstream and downstream markets.  For the first time in decades, refining, transportation, storage, and distribution of oil and refined products would be open to the private sector. Although not final, these permits are expected to operate through the federal Energy Regulatory Commission (CRE). 

In addition to overhauls of the oil and gas industry, the legislation drastically changes the country’s power generation policies.  The reforms create an independent system operator (CENACE) with the goal of incentivizing private investment in power generation.  The bill also modifies Mexico’s electric tariffs, particularly for the industrial sector.

Outlook 

Following approval from both chambers of Mexico’s Congress, the energy reforms are expected to be signed by President Pena Nieto as early as February 2014.  Before the law can be enacted, however, the amendments must be ratified by a majority of Mexico’s 31 states.  But a majority of the state legislatures are controlled by President Pena Nieto’s ruling party or its allies.

In addition, several more rounds of legislation will be needed to effectuate the proposed reforms.  From the wholesale change to Pemex, from a public operator whose profits went directly to the federal treasury to a globally competitive for-profit entity, to the development of an entire regulatory regime, many details are left to be ironed out.  Additional legislation is expected to come before Congress in the spring of 2014.  Until then, many questions will remain about the degree and manner in which foreign companies will be a part of the future of Mexico’s oil and gas industries.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Akin Gump Strauss Hauer & Feld LLP | Attorney Advertising

Written by:

Akin Gump Strauss Hauer & Feld LLP
Contact
more
less

Akin Gump Strauss Hauer & Feld LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.