Energy & Natural Resources
The statutory framework overhauling the Mexican energy sector has now been fully enacted. Two major next steps are envisaged: expanding exploration and production by launching rounds for the award of contracts to private operators and the continued enactment of regulations, directives, rules, guidelines and principles to implement the reform further.
When the secondary legislation for the recent energy reform was promulgated in August 2014, President Peña Nieto committed to continue with an aggressive schedule of implementation and offered to issue the administrative regulations to enact the reform by the end of October 2014. Consistent with this, the implementing regulations have now come into effect.
In December 2013 Congress passed a constitutional amendment to overhaul the Mexican energy sector; the secondary legislation to implement the reform recently entered into force. This update covers the provisions affecting the electricity and geothermal energy sectors and highlights key preliminary considerations for existing market participants and those that will enter the market as a result of the overhaul.
The secondary legislation to implement Mexico's overhaul of its energy sector is now in force. While amending existing statutes to comply with the new framework, the legislative package includes a number of new laws. This update covers the provisions affecting the oil and gas sector and highlights key preliminary considerations for existing market participants and those that will enter the market as a result of the overhaul.
In a historic move, in December 2013 Congress approved a bill to implement constitutional changes that will reshape the structure of the Mexican oil and gas sector. The president has now submitted to the Senate the long-awaited bill setting out the legislative package to be passed in order to implement the constitutional changes.
The Mexican national oil company (Pemex) recently submitted its requests for the so-called 'Round Zero' to the Ministry of Energy and the National Hydrocarbons Commission. Following completion of Round Zero, the government will define the areas to be released from Pemex control, which – in addition to areas not presently covered by Pemex – will be opened to bidding by private international operators.
Congress has made a historic move by breaking the government's vertically integrated monopoly over oil, gas and electricity, thereby opening the door to competition in the Mexican energy industry. Following approval by both Congress and the vast majority of state legislatures, the constitutional amendments have been promulgated and are now in effect.
The president has proposed a tax reform that will have a significant effect on the use, exploitation and consumption of natural resources, including fossil fuels and water. The president's bill proposes a carbon tax applicable to manufacturers, producers and importers of fossil fuels, as well as a new tax on the transfer of water extracted from a particular basin and consumed at another without an environmental connection.
In a historic move for the Mexican energy industry, President Enrique Peña Nieto recently submitted to Congress a bill of amendments for a major overhaul of the energy sector. The bill is the beginning of a series of changes to federal legislation in need of reform, and sets out the basis for a new perspective in the operation of both the oil and gas industry and the power sector.
The government recently enacted a new statute that will directly affect the way in which energy companies deal with environmental liability and the sustainable business model of projects. It is yet to be seen how the statute will be implemented, but the ambitious system and goals that it has set call for a major change in the sustainable development of projects in Mexico.
The articles of association of the four subsidiary entities of Mexican Petroleum (Pemex) recently became effective. The new articles are in line with the recently published amendments to Pemex's articles of association and contain provisions to establish the entities' basic organisational structure and the scope of authority of their general directors, administrative units, departments, managerial and general personnel.
The Ministry of Energy has published its guidelines for the authorisation of drilling works for oil and gas exploration and production. The guidelines set forth the documents to be submitted to the ministry and the requirements that must be met by Pemex before it can be authorised to undertake drilling activities. The list of required documents and conditions to be met is significant and, in places, vague.
The Federal Commission for Regulatory Improvement has published a draft of the new Dispatch and Operation Rules of the National Electric System. The dispatch rules will supersede those that were previously in effect and include both specific rules for renewable energy and efficient cogeneration facilities and further details about the necessary procedures for the dispatch of generation facilities.
The Energy Regulatory Commission has passed a resolution establishing the legal, administrative and technical requirements that power generators must satisfy to be eligible to interconnect their renewable energy and efficient cogeneration projects to the National Electric System. The new rules are another step forward in the government's efforts to improve the regulatory framework for renewable energy projects.
An amendment to the Contracting Administrative Provisions for Acquisitions, Leases, Works and Services of the Substantive Productive Activities of Mexican Petroleum (Pemex) and Subsidiary Entities has been published in the Federal Register. This amendment allows Pemex to negotiate and execute contracts dealing with regulated sectors with greater flexibility.
The Ministry of Foreign Affairs has published in the Federal Register the Agreement Between the United Mexican States and the United States of America Concerning Transboundary Hydrocarbon Reservoirs in the Gulf of Mexico. The treaty establishes the terms and conditions for exploring and developing the oil and gas reservoirs along the maritime border between the two countries in the Gulf of Mexico.
Mexico relies on fossil fuels for nearly 90% of its energy; one of the main objectives of the General Climate Change Law is the phasing-in of renewables in their place. Economic incentives for the development of efficient cogeneration and 'clean' energy facilities are among the many changes likely to affect the industry in the short and medium term.
After months of speculation, the US and Mexican governments have agreed a framework that, among other things, effectively creates a harmonised system of offshore technical standards for exploration and production in the Gulf of Mexico. The treaty sets the terms whereby Mexican state-owned hydrocarbons company Pemex may conclude a joint venture for the exploration and exploitation of hydrocarbon reserves.
In recent years Mexico has sought to play a greater global role in climate change policy. The General Law on Climate Change, recently passed by the Senate, is an important piece of the puzzle. Among other things, the law calls for the gradual elimination of fossil fuel subsidies and seeks to foster the development of clean-energy facilities, efficient cogeneration and renewables.
Although industrial demand for gas has grown substantially, Mexico's transportation capacity has not kept pace. An ambitious investment plan worth $10.5 billion includes plans for nearly 4,400 kilometres of new pipelines. Together with other industry developments, such as the final implementation of rules for direct sales of domestic gas by Pemex, the pipeline projects make this a sector in development.
Recent changes to the National Water Law provide that hydroelectric projects with a power generation capacity of up to 30 megawatts do not require a government concession to use water from rivers or channels for electric power production, provided that such use does not divert water flow or affect water quality or volume. The National Water Commission has now clarified these criteria.
Amendments to the Mining Law Regulations on Coal-Bed Methane, which are expected to be in effect shortly, set out the key information that mining concessionaires must supply in an application for a coal-bed methane production permit. The amendments also provide that in the case of projects for gas for delivery to Pemex, the Ministry of Energy may refuse to issue a permit on certain grounds.
Pemex-Exploración y Producción - the exploration and production subsidiary of the state-controlled oil company Pemex - has announced a call for an international public bid for an exploration and production project. For the first time, the process will incorporate the new incentive-based model contracts that were recently declared valid by the Supreme Court of Justice.
The Supreme Court recently upheld the legality of the new Pemex Regulations, allowing Mexico's state oil company to launch the first round of the new exploration and production contracts, starting with mature fields in southern Mexico. The new model contracts create an incentive to maximise production levels and are widely seen as first step towards more innovative sector developments.
Mexico's busy natural gas transmission networks face restructuring through the reallocation of capacity and provision of transportation services, with the long-awaited conclusion of the transitional period introduced in 1999. The plan is viewed by market analysts as a further step towards market liberalisation.
Oil company Pemex recently formed the Committee of Strategy and Investments and the Committee of Acquisitions, Leases, Works and Services. This brought into effect the 2009 Contracting Administrative Provisions, which govern services and public works related to productive activities. The provisions replace the more rigid government procurement laws that Pemex had to apply under the previous regime.
Mexico is one of the few countries that has liberalized its natural gas midstream and downstream industry without liberalizing and allowing competition in gas production. However, the federal government is looking to foster the participation of the private sector in the natural gas industry and increase the production of natural gas.
The Regulations to the Law on the Use of Renewable Energy and the Financing of the Energy Transition have been published. Among other things, they set a timeframe for proposing rules on the interconnection of renewable energy projects with the national grid and calculating the compensation due to self-supply, small-scale production and independent power production projects.
The energy reform package approved in November 2008 requires extensive regulations to implement it. The Federal Commission for Regulatory Improvement's recently published draft regulations range from policy aims in the fields of renewable energy and cogeneration to specific requirements for public bidding for renewables projects and details of the Federal Electricity Commission's projects.
The federal government is looking to encourage private participation in the electricity sector, particularly in power generation, and the lack of public resources to cope with demand has become one of the leading drivers for structural reform. Among other things, private involvement requires an understanding of the regulatory landscape and the fields of generation, transmission and distribution.
Among the regulatory measures required to implement the energy reform package, President Calderón must ask the Senate to ratifiy his nominees to the board of Pemex, the state-owned oil and gas company. These professional members will exercise considerable decision-making authority in the reorganized corporation. The Senate has a 30-day period in which to consider the four nominees.
President Felipe Calderón has promulgated the new energy reform package, bringing numerous provisions into effect and starting the countdown on a challenging implementation schedule. Implementing regulations for many of the provisions not on the agenda, such as those relating to Pemex contracts and citizen bonds, must be enacted promptly if the industry is fully to realize the advantages of the reform.
President Felipe Calderón has submitted a bill to allow Pemex, the state-owned oil and gas company, to increase production and allow greater private sector involvement in the Mexican oil and gas industry. The bill advocates a moderate, positive approach to reform, but recent political debates and an alternative proposal are likely to lead to a more conservative outcome.
The Ministry of Energy recently published the new official standard for the distribution of natural gas and liquefied petroleum gas through pipelines. It will enter into force on May 12 2003. Meanwhile, the Federal Electricity Commission has awarded the El Cajón hydroelectric project, one of the largest in Latin America, to a consortium led by Ingenieros Civiles Asociados.
The House of Representatives has passed a bill that amends the two statutes which regulate all of the federal government's acquisitions and public works projects. The bill will significantly change the way bids are implemented by oil and gas company Pemex, electricity supply company CFE and other government agencies.
Pemex (the state oil and gas company) has released the third draft of the Multiple Services Model Contract. The aim is to hire contractors to perform a wide variety of services under single contracts. The release should allow enough time for feedback prior to the scheduled call for tenders, while the contract itself has undergone considerable reorganization.
The Energy Regulatory Commission recently announced that none of the potential bidders for the Veracruz natural gas concession has submitted a proposal, due to concerns that the purchase price for the infrastructure is too high. Meanwhile, preliminary bidding guidelines have been released for construction and operation of a liquified natural gas terminal in the Altamira region.
The energy authority recently invited bids for a public works contract for the construction of two turbogeneration units, estimated to be worth over $1 billion. In other news, wide reforms of the power industry have been proposed, aimed at opening up the power generation market by allowing industrial end users to choose between different electricity supply options.
A set of amendments to the Natural Gas Regulations governing liquefied natural gas regasification terminals has been postponed indefinitely, due to the current political situation. As a result, the Energy Regulatory Commission will now address some of the issues that would have been covered in storage permits.
The Energy Regulatory Commission has modified the geographic zone of Bajío Norte after a petition from Gas Natural de México, the local distributor, so that the municipality of Lagos de Moreno is included.
The Federal Electricity Commission recently published an invitation to bid for two gas-fired combined-cycle power projects listed in the Federal Register. Because both projects are located close to the US border, significant private sector interest is expected.
A group of senators from the Democratic Revolutionary Party recently submitted an electricity reform proposal to Congress. This replaces a previous proposal, submitted in February 2002.
Pemex recently released the first term sheet for the long-awaited multiple services contracts. Under a multiple services contract a contractor will be hired to perform a wide variety of services under a single contract.
Recent legislation affecting the Mexican energy sector includes the Energy Sector Plan 2001-2006 and proposed amendments to the Natural Gas Regulations. This update discusses the impact that these changes will have on the sector.
This update discusses a series of measures that should open up and develop the markets for oil, gas and electricity in Mexico.
The recent termination of three contracts by Pemex is a positive sign of its intentions to open up the lubricants market to Mexican and foreign companies, which could represent a market opportunity of over 5,000 service stations in Mexico.
A number of recent pieces of legislation are aimed at opening up the energy market in Mexico and making it more transparent for investors. This update examines the changes and their effects.
White Collar Crime
A new anti-corruption law is intended to penalise individuals and companies, from Mexico or abroad, that engage in unethical behaviour in the context of government contracts in Mexico. As well as private contractors that do business with the government itself, the law will affect dealings with the government-owned oil and power companies and the agencies that award infrastructure concessions.
Projects & Procurement
Public-private partnership (PPP) statutes enacted by individual states have provided a legal basis for a variety of projects, but Mexico lacks an efficient PPP framework at national level. Two bills before Parliament's upper and lower houses promise a new framework for PPP projects. Among other things, the proposal before the Senate would give government agencies greater latitude in setting the terms of a contract.