The legal framework of the Mexican public entity Petróleos Mexicanos and its subsidiaries (collectively and indistinctively “PEMEX”), which controls the Mexican oil industry, was amended in November 2008. These changes were the result of long and intense discussions between the main political actors in Mexico. Following is a brief summary of the effect of the amendments with respect to PEMEX‘s ability to enter into arbitration agreements.

In connection with arbitration agreements, it is important to consider that Mexico is a signatory of many international treaties concerning arbitration, including the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the 1975 Inter-American Convention on International Commercial Arbitration, and has a domestic arbitration statute that largely follows the Model Law of the United Nations Commission on International Trade Law (“UNCITRAL”).

Before the amendments were passed by the Mexican Congress, Article 14 of PEMEX’s Organic Law (Ley Orgánica de Petróleos Mexicanos y Organismos Subsidiarios or the “Organic Law”), provided that PEMEX had the full capacity to enter into arbitration agreements or include arbitration clauses in any kind of agreements, whether domestic or international.

As a result of the recent amendments, the Organic Law was superseded by the Law of PEMEX (Ley de Petróleos Mexicanos or the “PEMEX Law”), which in Article 72 confirmed the rule provided under the Organic Law, permitting PEMEX to consent to arbitration. Furthermore, the Law Implementing Article 27 of the Constitution in the Oil Sector (Ley Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo or the “Oil Law”) separately introduces a new rule with respect to PEMEX’s arbitration agreements.

In particular, Article 6, paragraph 2, of the Oil Law provides that:

Petroleos Mexicanos [i.e., PEMEX] shall not consent, in any case, to foreign jurisdictions in respect of controversies related to contracts for works and services in the national territory and in the areas where the Nation exercises sovereignty, jurisdiction, or competence. Contracts may include arbitral agreements in accordance with Mexican laws and international treaties to which Mexico is a party.2

As to the first sentence in this provision, it bears noting that the meaning of “foreign jurisdictions” is not spelled out. Traditionally, the concept of “foreign jurisdictions” has been understood as referring to foreign courts. Therefore, we consider that this first sentence provides the rule that all controversies related to contracts for works and services in the national territory will be subject to the exclusive jurisdiction of the Mexican courts.

Notwithstanding the above, PEMEX‘s capacity to enter into arbitration agreements does not seem to be affected. Indeed, the second sentence of the new regulations provides that arbitration agreements are permissible in contracts, in accordance with Mexican law and international treaties to which Mexico is a party.

In sum, the new amendments to PEMEX’s legal framework do not restrict its capacity to enter into arbitration agreements related to contracts for works and services in Mexican territory. Furthermore, pursuant to the Oil Law, the place of arbitration may be located in a foreign country, although the current practice of PEMEX is to choose Mexico as the exclusive place of arbitration.