After 76 years of state monopoly, on Monday President Enrique Peña Nieto signed the enabling legislation for the opening of the Mexican energy sector. The nine new statutes, and amendments to the original twelve in place, that were passed establish a new legal framework for the implementation of crucial reforms that will allow private sector participation in the oil , gas and electricity industries.
With liberalisation, the energy sector is now poised to attract billions of dollars in investment as well as make the oil, gas and electricity industries more competitive in Mexico. Under the new legal framework, private oil and gas firms will operate under contract with the state, competing with PEMEX. Production-sharing contracts and licenses will be allowed and companies will be able to book reserves as expected income. Power generation will also be open to competition and a wholesale electricity market introduced to facilitate trading under the supervision of an independent (and not-for-profit) system and market operator. Private transmission and distribution companies will be able to operate under contract with CFE and its subsidiaries.
Two key battles have already been won by the current Administration: first, amending the Federal Constitution back in December, which required a special majority of votes and overcoming important political hurdles; and second, approving an ambitious legislation package, which required gathering a vast amount of political will. The attention will now shift to establishing the detailed rules and regulations for the new industry models. While the key battles have been won, the benefits of liberalisation will not accrue until these have been implemented. This endeavour is therefore no less crucial to the success of the political programme, and will require significant economic, legal, technical, financial work to achieve.
Those familiar with the energy sector and liberalisations across the world will know that the devil is in the detail. It is no surprise that the drafting and implementation of the rules and regulations for both industries remains a concern for potential participants. In addition to becoming acquainted with the new legal framework, they will need to keep an eye on both amendments and the significant volume of new rules that will be issued over the coming year and a half.
Woodhouse Lorente Ludlow, together with CMS Cameron McKenna, have had the honour of previously advising the Mexican Federal Government on the design of electricity market reform and will be well placed to assist private sector entities wishing to participate in the development of oil & gas projects, public infrastructure and power sector projects pursuant to this new legislation and the wider statutory and industry frameworks supporting the liberalisation programme.