Background

On 12 December, 2013, the Chamber of Deputies (equivalent to the U.S. House of Representatives), acting as reviewing chamber, approved a decree that amends and adds several provisions to the Mexican Constitution on energy matters (Reform).

Previously, on 11 December, 2013, the Reform was drafted, discussed and approved by the Senate, acting as chamber or origin.

Scope of the Reform

The Reform proposes amendments to the fourth, sixth and eight paragraph of Article 25; sixth paragraph of Article 27; and the fourth and sixth paragraphs of Article 28; in addition to adding a seventh paragraph to Article 27 and an eighth paragraph to Article 28, all of them of the Mexican Constitution.

The most relevant aspects of the Reform are the following:

Hydrocarbons sector

  • The Mexican State maintains, at all times, ownership of the hydrocarbons located in the subsoil, whether solid, liquid or gas.
  • Exploration and extraction of oil are activities of social interest and public order, with preference over any other activity involving the use of surface and subsoil.
  • The State is allowed to carry out activities of exploration and extraction of hydrocarbons through contracts with private parties, using the following contracting modalities, among others:
  1. Services contracts with cash payments.
  2. Profit sharing contracts with payments based on a percentage of the profits.
  3. Production sharing contracts with payments based on a percentage of the production.
  4. License contracts with an onerous transfer of hydrocarbons as payment at wellhead.
  5. Any combination of the above.
  • Private investors will be able to book, for accounting and financial, purposes the contracts entered with the State for exploration and extraction of hydrocarbons and their expected benefits, even though all hydrocarbons located in the subsoil will be owned by the Nation.
  • Introduction of a "Round Zero" to award to Petróleos Mexicanos (PEMEX) the exploration of areas and fields that are currently in production.
  • Promotion of the participation of domestic companies through rules and minimum percentages of national content.
  • Opening of investment in basic petrochemicals.
  • Granting of permits to private parties for the storage, transportation and distribution by pipelines of oil, gas, petroliferous and petrochemicals, as well as for the treatment and refining of oil and natural gas processing.
  • Creation of the Mexican Oil Fund for the Stabilization and Development (Fondo Mexicano del Petróleo para la Estabilización y el Desarrollo) in charge of managing the oil rent.
  • Creation of the National Center of Natural Gas Control (Centro Nacional de Control de Gas Natural), in charge of the operation of the national system of pipelines for the transportation and storage of natural gas.
  • Creation of the National Agency of Industrial Safety and Environmental Protection of the Hydrocarbons Sector (Agencia Nacional de Seguridad Industrial y de Protección al Medio Ambiente del Sector Hidrocarburos), to regulate and supervise the facilities and activities of the sector regarding industrial and operative safety, as well as environmental protection.

Power sector and sustainability

  • Activities related to the planning and control of the National Electric System (Sistema Eléctrico Nacional), as well as to the public service of power transmission and distribution will be exclusively reserved to the State, with the possibility of contracting private parties for such activities. 
  • Private power generation and commercialization will be opened to private investment.
  • Power transmission and distribution will be deemed activities of social interest and public order, with preference over any other activity involving the use of surface and subsoil.  
  • A wholesale power market will be created, in which public and private power generation companies will trade their production.
  • National content rules for power generation activities and for the public service of transmission and distribution will be promoted.
  • Programs and obligations for the parties participating in the power sector and regarding energy efficiency, clean energies and reduction of contaminating emissions will be promoted and created.
  • Inclusion in the National Program for the Sustainable Use of Energy, a transition strategy for the promotion of the use of cleaner technologies and fuels.
  • Creation of the National Center of Power Control (Centro Nacional de Control de Energía) as a decentralized body, in charge of the operative control of the national electric system, the wholesale power market, the open and non-discriminatory access to the national transmission grid and the general distribution grids. 

Conclusion

The Reform was sent to the legislatures of the local States and it was approved by the majority of the local congresses. The next step is the drafting and approval of the Reform Decree by the Congress of the Union, to be finally sent to the Federal Executive for its approval, enactment and publication in the Federal Official Gazette.

Please note that in order to implement this Reform, it will be necessary to adapt and amend the existing hydrocarbons and power legal framework, within a term of 120 calendar days following the effective date of the Reform Decree.