MEXICO’S ENERGY REFORM ©
August 7, 2014
Mexican Congress has approved a set of Bills that contain secondary
legislation to enact the Energy Reform initially submitted by President Peña Nieto in
August 2013, constitutionally approved in December 2013.
The Bills create 9 new laws and amend 12 existing statutes.
The new laws are: (i) Law of Hydrocarbons (Ley de Hidrocarburos);
(ii) Law of the Electric Industry (Ley de la Industria Eléctrica); (iii) Law of
Geothermal Electricity (Ley de Energía Geotérmica); (iv) Law that creates the
National Agency of Industrial Security and Environmental Protection of the
Hydrocarbon Sector (Ley de la Agencia Nacional de Seguridad Industrial y de
Protección al Medio Ambiente del Sector Hidrocarburos); (v) Law of Petroleos
Mexicanos (Ley de Petróleos Mexicanos “PEMEX”); (vi) Law of the Federal
Electricity Commission (Ley de la Comisión Federal de Electricidad “CFE”); (vii)
Law of the Coordinated Regulating Agencies of the Energy Sector (Ley de los
Órganos Reguladores Coordinados en Materia Energética); (viii) Law of
Hydrocarbon Revenues (Ley de Ingresos Sobre Hidrocarburos); and (ix) Law of the
Mexican Petroleum Fund for Stabilization and Development (Ley del Fondo
Mexicano del Petróleo para la Estabilización y el Desarrollo).
The amended laws include: (i) Law of Foreign Investment (Ley de
Inversión Extranjera); (ii) Law of Mining (Ley Minera); (iii) Public-Private
Associations Law (Ley de Asociaciones Público Privadas); (iv) Law of National
Waters (Ley de Aguas Nacionales); (v) Law of Public Entities and Organizations
(Ley Federal de las Entidades Paraestatales); (vi) Law of Governmental
Procurement, Leasing and Services (Ley de Adquisiciones, Arrendamientos y
Servicios del Sector Público); (vii) Law of Public Works and Related Services (Ley
de Obras y Servicios Relacionados con las Mismas); (viii); Law of the Federal
Government Organization (Ley Orgánica de la Administración Pública Federal); (ix)
Law of Federal Governmental Fees and Charges (Ley Federal de Derechos); (x)
Law of Tax Coordination (Ley de Coordinación Fiscal); (xi) Federal Law of Budget
and Treasury Liability (Ley Federal de Presupuesto y Responsabilidad Hacendaria);
and (xii) General Law of Public Debt (Ley General de Deuda Pública).
The most relevant topics of the Energy Reform include:
I. OIL & GAS
MEXICO’S ENERGY REFORM ©
A. PEMEX Round Zero / Entitlements. The Ministry of Energy
(Secretaría de Energía) (“SENER”) with technical assistance from the National
Hydrocarbons Commission (Comisión Nacional de Hidrocarburos) (“CNH”) will
grant PEMEX “Entitlements” (asignaciones) to perform upstream activities in
specific areas, provided it has sufficient technical, financial and performance
capacity to undertake the activities required for each Entitlement.
When preforming works under any Entitlements, PEMEX may only work
with the private sector through service and supply schemes.
PEMEX may lose its Entitlements through relinquishment or having
them revoked by SENER for cause. The relinquished or revoked Entitlements may
be awarded to private companies by means of public bids determined by SENER.
The first round of Entitlements for PEMEX (Round Zero) is expected to
conclude during the third week of September, 2014.
B. Private Sector Participation. As a result of the Energy Reform,
the private sector will now be allowed to participate in competitive bids for
upstream activities (exploration and exploitation of oil & gas), either directly
(production sharing agreements, profit sharing agreements or licenses) or
indirectly, by means of a joint venture with PEMEX or service and supply
agreements. The CNH will directly enter into any of the abovementioned contractual
schemes with private sector companies.
The first round of public bidding processes for upstream activities in
areas designated for the private sector are expected to commence by mid-2015.
C. Booking of Reserves. PEMEX and private sector companies
performing upstream activities under Entitlements, contractual and license schemes
may book or report reserves, for accounting and financial purposes, provided they
specify that underground hydrocarbons remain property of Mexico.
D. National Content. Subject to specific provisions of existing free
trade agreements to which Mexico is a party, as of 2015 companies involved in
upstream activities (including PEMEX) will be required to comply with a minimum of
25% of national content when performing such activities, except in deep and ultraMEXICO’S
ENERGY REFORM ©
deep water operations where national content percentage will be determined by
Mexico’s Ministry of Economy considering the technical opinion of SENER. The
national content percentage will be gradually increased until it reaches a minimum
of 35% in 2025.
E. Payments / Consideration.
(i) Payments to the Mexican State. -
“Exploration Fee” shall be payable to Mexico by contractors
performing exploration activities.
“Royalties” shall be payable to Mexico by contractors that
actually extract hydrocarbons. Royalties will be calculated
considering gross income of each specific field, international
hydrocarbon prices and type of hydrocarbon extracted. As an
incentive, contractors extracting gas will pay considerably low
Royalties. Standard Royalties are expected to average around 10%,
provided the crude oil price is US$100.00 per barrel.
The Exploration Fee and Royalties are intended to apply to all
contractual and licenses schemes.
“Signing Bonus” shall be payable to Mexico by contractors when
awarded licenses for upstream activities.
“License Percentage Rate” shall be payable to Mexico and will
serve as the main consideration received under license schemes.
License Percentage Rates will be calculated considering operating
profits or the hydrocarbons contract value.
“Contractual Percentage Rate” shall be payable to Mexico and
will be the main consideration received under profit sharing and
production sharing agreements. The Contractual Percentage Rate
will be calculated based on operating profits while discounting other
amounts paid to Mexico and production costs. The Contractual
Percentage Rate under profit sharing and production sharing
agreements will be paid in cash or in kind, respectively.
(ii) Types of Consideration to Private Companies. -
MEXICO’S ENERGY REFORM ©
“Cash” form of consideration payable to private companies
under profit sharing and service and supply agreements.
“In Kind” (a portion of hydrocarbons being extracted) form of
payment under production sharing agreements.
Combination of the above.
The type of payments to Mexico and form of consideration payable to
private companies will be set on a case by case basis by Mexico’s Ministry of
Finance and Public Credit (Secretaría de Hacienda y Crédito Público) (the “Ministry
of Finance”) considering the applicable offers by participants of public bidding
processes. Cost recuperation schemes (if applicable) for contractors will be taken
into consideration when calculating the payments to Mexico under each contract or
F. Tax Framework. Companies performing upstream activities will be
subject to Mexico’s general tax framework.
G. Authorities. The most relevant governmental authorities in
upstream activities are:
SENER: charged with (i) selecting areas or fields for private
sector participation; (ii) creating technical and contractual
guidelines for public bidding processes; (iii) resolving upon
migration of Entitlements relinquished or lost by PEMEX to
contractual or license schemes with private companies.
Ministry of Finance: charged with laying out economic and
consideration aspects that will apply to public bidding processes,
contracts and licenses.
CNH: charged with (i) providing technical assistance to SENER;
(ii) organizing and calling public bids, awards and execution of
public contracts; and (iii) determining general rules and guidelines
for upstream operations.
G. Mexican Oil Fund. The “Mexican Oil Fund for Stabilization and
Development” (Fondo Mexicano del Petróleo para la Estabilización y el Desarrollo)
MEXICO’S ENERGY REFORM ©
will be a sovereign fund of Mexico created by the Ministry of Finance as settlor and
the Mexican Central Bank as trustee. Its main purpose is to receive, manage and
distribute income (excluding taxes) that result from PEMEX Entitlements, license
and contractual schemes in upstream activities. The proceeds received by the
Mexican Oil Fund for Stabilization and Development will be used to pay private
contractors of upstream activities (when required), fund specific projects and funds,
cover a portion of Mexico’s public expenditure and invest for long term savings.
2. Midstream & Downstream
A. Private Sector Participation. Midstream activities (such as,
storage, pipelines and bulk transportation) and downstream activities (such as
refining, processing of raw natural gas, marketing and distribution of products
derived from crude oil and natural gas) may be performed by private sector
companies through the issuance of permits to be authorized by SENER or the
Energy Regulatory Commission (Comisión Reguladora de Energía) (“CRE”),
depending on the activity.
Only registration with the CRE is necessary for the marketing of crude
or refined oil, products and gas.
B. Gasoline & Diesel Markets. Permits for the sale (to the general
population) of gasoline and diesel by private sector companies will be authorized
after January 1, 2016. Prior to December 31, 2016, PEMEX will be the only one
authorized to import gasoline and diesel; thereafter the CRE will grant permits to
private sector companies.
C. Asymmetric Regulation For Pemex. In order to procure a
balanced oil & gas market, CRE will subject the first-hand sale (initial sale) of oil &
gas and its derivatives to asymmetric regulation principles (i.e., encourage
competition, no barriers to entry, create incentives to improve performance and
promote price structures that improve economic efficiency, among others) in order
to limit PEMEX’s dominant position, until efficiency and competitiveness by allowing
new players to participate in the oil & gas and derivatives markets is achieved.
A. Private Sector Participation. Generally, the private sector will be
allowed to participate in power generation and transformation. Privately generated
electricity may be sold (i) to the CFE; or (ii) in the wholesale market to high
MEXICO’S ENERGY REFORM ©
volume consumers. Permits for private power generation and transformation will be
issued by CRE.
B. CFE’s Role. CFE will remain the sole supplier and distributor of
electricity for the general population (residential users) and small to medium-size
commercial and industrial consumers. CFE power tariffs will be determined by CRE
considering market standards (production costs, availability, supply and demand,
C. Wholesale Electricity Market. High volume power consumers
may purchase electricity in the wholesale electricity market directly from private
producers and not just CFE. High volume consumers are defined as: (i) consumers
with a power demand equal to or greater than 3MW per year until mid-2015; (ii)
consumers with a power demand equal to or greater than 2MW per year until mid-
2016; and (iii) consumers with a power demand which is equal to or greater than
1MW per year as of mid-2016. The wholesale electricity market will be operated
and controlled by the National Energy Control Center (Centro Nacional de Control
D. Ownership & Operation of Mexico’s Power Grid. The power
grid will be owned by Mexico and will be managed, operated, controlled and
planned through the National Energy Control Center which can also provide
interconnection, transmission and associated services. Private companies may
participate with the National Energy Control Center in the financing, installation,
maintenance, operation and construction of the infrastructure associated with
Mexico’s power grid.
III. PRODUCTIVE STATE COMPANIES
PEMEX and CFE will be transformed into productive companies owned
by the Mexican State, and will be participants in the oil & gas and electricity
markets, with non-regulatory roles, specific mandates and preferential treatment in
some activities. There will be a transitional period which will allow a seamless
transition of PEMEX and CFE into their new roles as productive state owned
companies. Regulatory and market coordination roles will be transferred to SENER,
CNH, CRE and the National Energy Control Center, among others.
The organic laws of PEMEX and CFE have included private company
practices in their corporate governance, surveillance and audit, transparency and
accountability, among other standards.
MEXICO’S ENERGY REFORM ©
IV. LABOR UNIONS
Based on their number of employees and other causes specified in law,
private participants in the oil & gas and electricity sectors may be required to enter
into collective bargaining agreements with labor unions representing such
employees. PEMEX’s union (Sindicato de Trabajadores Petroleros de la República
Mexicana) and CFE’s union (Sindicato Único de Trabajadores Electricistas de la
República Mexicana) will have no exclusivity over other unions to enter into such
collective bargaining agreements with such private companies.
If you have any questions or wish to discuss the Energy Reform or
Mexico's energy sector in further detail, contact any of Michell Nader S.
(firstname.lastname@example.org), Javier Arreola E. (email@example.com), Julián Garza C.
(firstname.lastname@example.org), Héctor Arangua L. (email@example.com) or José
Sifuentes D. (firstname.lastname@example.org).