Juan Francisco Torres Landa M. Jorge Yáñez V. Brenda Audrey Rogel Salgado Jeanett Trad Nacif July 11 2016 New guidelines minimise risk hydrocarbons industry poses to environment Hogan Lovells | Environment & Climate Change - Mexico Juan Francisco Torres Landa, M. Jorge Yáñez V., Brenda Audrey Rogel Salgado, Jeanett Trad Nacif Environment & Climate Change IntroductionGuidelinesApplicabilityProcessImplementation programmeOngoing complianceCommentIntroductionThe hydrocarbons sector has had a significant impact on the Mexican environment, largely through contamination caused by spills during the production process. In 2015 the hydrocarbons sector released 358.9 tons of contaminants into water bodies and the range of its contaminated sites increased to 1,161.93 hectares.(1) Further, 86% of oil spills in the hydrocarbons sector were a result of poor maintenance.(2) Such contaminations can contribute to the loss of marine life, onshore soil damage and human health complications.In light of this, specialised environmental operational and safety guidelines are needed to address environmental risks and the corresponding mitigation measures that parties must undertake in regards to a hydrocarbons project. This is particularly true given the recent Mexican energy reforms, which have increased production in the hydrocarbons sector by extending extraction rights to private investors – a right that was previously held exclusively by Mexicans. Coincidentally, a more comprehensive set of environmental accountability mechanisms has been established for the hydrocarbons sector.GuidelinesOn May 13 2016 the General Administrative Provisions that Establish the Guidelines for the Conformation, Implementation and Authorisation of the Administration Systems for Industrial and Operational Safety and Environmental Protection Applicable to the Referred Activities of the Hydrocarbons Sector were published in the Federal Official Gazette and became binding on participants in the hydrocarbons sector.Before their enactment, the National Agency for Industrial Safety and the Protection of the Environment in the Hydrocarbons Sector (ASEA) published a non-binding guide for the proper management of operational safety and environmental protection as a recommended basis for hydrocarbons project administration systems.The new guidelines ultimately solidify the previous guide's need for environmental accountability in the hydrocarbons sector. Given the gravity of environmental harm that the hydrocarbons sector can cause – in addition to the need to ensure proper project maintenance and the recent increase in hydrocarbons sector activity resulting from the energy reforms – the timing of the guidelines' enactment is ideal.ApplicabilityThe new guidelines apply to companies involved in the following hydrocarbons activities:the surface exploration, exploitation and extraction of hydrocarbons;the treatment, refining, sale, transportation and storage of petroleum;the processing, compression, liquefaction, decompression, regasification, transportation, storage and distribution of natural gas;the transportation and storage of liquefied petroleum gas;the transportation and storage of petroleum; andthe transportation via pipeline and storage of petrochemicals.The guidelines also apply to contractors, subcontractors and any other person or company working under the instruction of a company undertaking regulated activities in the hydrocarbons sector. Thus, new private investors entering the hydrocarbons sector following the energy reforms must also comply with the guidelines. Such private investors must either abide by the administration system and implementation programme of the party executing the project or submit their own administration system to the ASEA for approval and registration.ProcessCompanies wanting to undertake a project in the hydrocarbons sector must:prepare and register an administration system (which must be designed according to the guidelines) with the ASEA; andsecure authorisation of the administration system's implementation programme.When companies have secured a concession title, contract or permit authorising them to undertake a project, they must request from the ASEA authorisation of their implementation programme and other environmental permits and authorisations in relation to:environmental impact and risk assessments;waste generation;changes of forestry land use;air emissions; andwildlife protection.They must also obtain water permits and other authorisations from the National Waters Commission.Implementation programmeThe implementation programme must address – among other things – the environmental risks posed throughout the complete lifecycle of the project, including during site abandonment and dismantling.The implementation programme must also include:an assessment of the site's physical safety;the identification of preventive measures; andinformation on the monitoring and mitigation of incidents that could occur as a result of the identified risks to the population, the environment – including wildelife – the site and its infrastructure and the surrounding areas.To obtain approval of an implementation programme, interested parties must provide certain information, including:assessment results;the prioritised environmental aspects of the project;a list of applicable legal requirements and provisions;a list of applicable legal processes such as licences, permits and authorisations; andemergency response programmes.Ongoing complianceOnce an implementation programme has been authorised by the ASEA, companies must comply with a series of obligations, including the provision of:biennial compliance reports on the implementation programme;six-monthly third-party audit results regarding the project's facilities; andbiennial compliance reports relating to the findings of the third-party audits.These obligations will help to ensure that the project continues to comply with the policies in the implementation programme and thus help to mitigate environmental risks. The reporting and monitoring obligations are independent from those required for:environmental impact and risk authorisations;air emission permits;authorisations to change forestry land use issued by the ASEA (among other permits); andauthorisations issued by the National Waters Commission for similar projects.CommentCompanies that are active in the hydrocarbons sector before the guidelines were enacted must register their administration system before the ASEA within 120 business days of the guidelines' publication in the Federal Official Gazette and secure authorisation of their implementation programme within 120 business days of the issuance of their single regulated registry code.It is hoped that the guidelines will enable the hydrocarbons sector to adopt more environmentally accountable mechanisms and mitigate the types of environmental harm that could occur in the future.For further information on this topic please contact Juan Francisco Torres Landa, Mario Jorge Yanez, Brenda Rogel Salgado or Jeanett Trad Nacif at Hogan Lovells BSTL, SC by telephone (+52 55 5091 0000) or email ([email protected], [email protected], [email protected] or [email protected]). The Hogan Lovells BSTL, SC website can be accessed at www.hoganlovells.com.Endnotes(1) For more information please see www.sinembargo.mx/04-06-2016/3049723(2) Ibid.