Oil and Gas
In December 2001 the Ministry of Energy and Pemex presented the new structure for multi-service contracts for the exploration and production of dry gas. Multi-service contracts are designed to adapt international structures, such as production sharing agreements and risk service contracts, to the current restrictive legal framework governing exploration and production of hydrocarbons in Mexico. The legal framework prohibits production sharing between Pemex and private developers, as well as the payment of such private developers in kind with oil and/or gas.
The new contracts contemplate increasing payments based on productivity and revenues available from the projects. Pemex, through its exploration and production subsidiary Pemex-Exploración y Producción, is planning to launch a series of bids by mid-2002 for the development of these projects.
On December 4 2001 the ruling National Action Party submitted a bill to amend the Federal Constitution and open the generation, distribution and marketing of power to private participation. The national transmission grid would remain under the government's control and CFE, the electricity power utility company, would continue to be the only carrier in Mexico. Likewise, no assets currently pertaining to CFE or Luz y Fuerza del Centro, another power utility company, would be divested.
Once the electricity bill has been discussed and passed by Congress, implementing and enabling legislation will be introduced. This legislative process could take between one and three years, depending on various political factors.
This is the third step towards opening up the power industry in Mexico. In 1992 the Mexican electricity industry was partially opened by Congress through an amendment to the Electric Power Public Utility Law. This allowed private participation with no foreign investment restrictions in certain power generation projects that had been expressly excluded from being considered part of the 'electric power public utility service', which is exclusively reserved to the state. The projects are:
- independent power production;
- small-scale production; and
- generation for export purposes.
The amendment to the Electric Power Public Utility Law also allows private parties to import power. These activities are subject to permission from the Energy Regulatory Commission.
Demand for electricity in Mexico is expected to increase at a rate of over 6% a year. Coping with such demand will require an additional generating capacity of over 21,000 megawatts within the next eight years, coupled with an expansion of the national transmission grid by approximately 20,000 miles, and 70,000 megavolt amperes in substations for the period from 2000 to 2008. This will entail capital investments of more than $51 billion.
For further information in this topic please contact Rogelio López-Velarde at Lopez Velarde, Heftye, Abogados by telephone (+52 55 50 81 1424) or by fax (+52 55 50 81 1425) or by email ([email protected]).