The Mexican Supreme Court of Justice (SCJ) on April 7, 2022, discussed the constitutionality of the Electric Power Industry Legislation (ley de la industria eléctrica),1 against which many amparo trials (constitutional challenges) were filed and are still pending resolution.2
Against the interest of private investors, who see this legislation as contrary to their interests, the SCJ did not reach the majority vote of eight out of 11 to declare the legislation unconstitutional as a whole. It will therefore continue to apply.3
The Court's Decision
Nonetheless, the SCJ decision contains mixed results. On the one hand, the court did reach the qualified majority with regard to specific provisions of the legislation that are now considered to be constitutional, meaning that said articles can no longer be questioned by lower courts.
On the other hand, by simple majority (but not qualified), several judges found that many other provisions of the law are unconstitutional either because they breach the principles of free gathering or that of competition policy, and therefore can still be challenged through the ongoing amparo proceedings, which were pending as to the results of this decision by the SCJ.
It is likely, however, that many of the amparos will result in favor of the claimants, since judges would have to at least take into consideration the opinion of the majority (although it is not a guarantee that they will), and if said amparo proceedings end up in the SCJ, based on the decision, should result in amparo sentences in favor of the claimants.
The now constitutional articles of the law – transitory Articles IV and V, for example – require the authority to review all of the self-supply scheme existing permits (autoabasto) as well as all contracts related with electricity generation capacity and sales and purchase of electric energy, and supply of energy, to make sure that licenses were not obtained illegally, meaning that they are not being used to supply electricity to third parties, or to guarantee that the contracts are in accordance with law, otherwise the contracts would be subject to renegotiation or cancellation. It is worth mentioning that such reviews and their results could still be challenged before the administrative courts.
Conclusion and Takeaways
In sum, these results maintain the uncertainty as to the consequences for the companies that have invested in the electric sector, and as U.S. Ambassador to Mexico Ken Salazar rightly said "… the 2021 electricity law is likely to open the door to litigation," which would include not only local courts litigation, but also international investment claims and international trade state-to-state disputes against the Mexican government.
Holland & Knight will continue to closely follow the results of this decision, and will publish additional alerts on this matter and the constitutional reform proposal that will be discussed in the Mexican Congress within the coming weeks. This constitutional reform proposal is seeking to undo many of the 2013 constitutional reforms that opened the gates for foreign investment in the energy sector. Notes
1 Unconstitutionality Action 64/2021 against the Electric Industry Legislation published on March 9, 2021. (See previous alert "Amendment to Mexico Power Industry Law: Change of Law Provisions," March 3, 2021.)
2 The opportunity for new amparo proceedings against the law is at this time limited to extraordinary circumstances, so it is unlikely that new challenges could be brought.
3 A summary of the SCJ decision (Spanish only).
