Energy: Oil & Gas 2019

Last Updated December 11, 2018

Contributed By Haynes and Boone, SC

Trends and Developments


Author



Haynes and Boone, SC is one of the most active US law firms operating in Mexico, serving a growing list of both international and Mexican clients. The fully bilingual Mexico City office – with lawyers licensed in Mexico, the USA and Argentina – has been serving clients for more than 23 years and has grown into a full-service firm, with practice areas complementary to energy such as environmental, M&A, maritime, regulatory, international trade and tax. Haynes and Boone also serve clients from 15 other offices, including energy and financial hubs such as Houston, Denver, London and New York. The team has been particularly active assisting clients involved in the different E&P bid rounds of CNH, several migrations of service contracts to E&P contracts, financing renewable energy projects, representing buyers and sellers of solar projects, representing clients in CENACE’s long-term auctions, obtaining open seasons for transporting fuels by pipeline, negotiating with PMI for the sale of natural gas and crude oil, obtaining permits and registrations before the CRE, SENER and CENACE, interacting with Pemex and CFE, and assisting clients with import and distribution of fuels.

Introduction

Almost five years have elapsed since the publication of the Constitutional Energy Reform in Mexico in December 2013. 

The Federal Government has implemented the energy reform at a very fast pace and has been able to secure investment commitments for almost  USD200 billion. 2018 has been a very active year in the implementation of the energy reform; as of the end of the first quarter of 2018, the Energy Regulatory Commission (Comisión Reguladora de Energía) (“CRE”), has issued more than 12,246 permits for retail gasoline, more than 2,166 permits for transportation, storage and distribution of fuels, and more than 248 permits for marketing of fuels and oil products. In the natural gas sector, the CRE has issued more than 270 permits for pipeline transportation. In the power sector, the CRE has granted 1,281 power generation permits, one basic supply permit and 40 qualified supply permits, and has registered 123 qualified users and 21 non-supplier marketers. 

In five bidding processes (four corresponding to Round 1, four corresponding to Round 2 and one corresponding to Round 3) the National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos) (“CNH”) has awarded  107 blocks for E&P activities under a licence or a production-sharing agreement. These blocks include 48 for onshore, 31 for deep water and 28 for shallow waters.

The CRE, CNH and the Agency for Safety and Environmental Protection in the Hydrocarbons Sector (Agencia de Seguridad Industrial y Protección al Medio Ambiente del Sector Hidrocarburos) (“ASEA”) have issued very important Regulations in 2017 and in the first half of 2018 such as: Modifications to Well Drilling Guidelines, Guidelines for Quantification Procedure of National Reserves, Modifications to the General Administrative Provisions of the Commercial Statistic Transactions Registry (“SIRETRAC”), Maximum visibility guidelines for current fuel prices and identification in gas stations, Gasoline and diesel market liberalisation, Guidelines for the Integral Waste Management, NOM-150-SEMARNAT-2017, and NOM-007-ASEA-2016, among others.

We expect the second half of 2018 also to be very active with new energy infrastructure projects such as the Baja and Oaxaca electric transmission lines, new bids by CNH (Rounds 3.2, 3.3 and new Farmouts), the fourth long-term auction by the National Centre for Energy Control (Centro Nacional de Control de Energía) (“CENACE”) and the auctions for new natural gas pipelines and for the natural gas underground project by the National Centre for Natural Gas Control (Centro Nacional de Control del Gas Natural) (“CENAGAS”).

Oil & Gas

Upstream

On 12 July 2017, CNH announced the results for Rounds 2.2 and 2.3. Derived from this Rounds CNH awarded seven out of ten licence contracts for Round 2.2 and 14 licence contracts for Round 2.2. These bidding processes consisted of 24 contractual areas for onshore blocks located in the areas of Burgos, Tampico-Misantla, Veracruz and Southeast Basins. Jaguar Exploration and Production was the winner for Round 2.2. after being awarded with six blocks and Iberoamericana de Hidrocarburos with one block. For Round 2.3, Iberoamericana de Hidrocarburos was awarded with two blocks, Newpek with two blocks, Jaguar Exploration and Production with five blocks, Shandong with two blocks and Carso Oil and Gas with two blocks.

On 25 January 2018, CNH published the call for the second bid of Round 3. This new bid round (Round 3.2) which covers 37 onshore conventional blocks for exploration and production, including 21 blocks in the Burgos Region in Tamaulipas, nine blocks in the Tampico-Misantla-Veracruz Region in Veracruz, and seven blocks the Southeastern Region in Tabasco and Campeche, covering collectively 9,513 sq km, with prospective resources of approximately 260 million barrels of crude equivalent. The blocks to be awarded by the CNH include wet gas, dry gas and light oil. The deadline to access the data room was 9 May 2018. Prequalified companies will be announced on 3 July 2018 and the final versions of the documents will be published on 26 June 2018. The presentation and opening of proposals is scheduled for 27 September 2018.

On 31 January 2018, CNH conducted the submission and opening of bids for the Deep Water “Round 2.4” E&P licence contracts. The bid round comprised 29 offshore deep-water blocks and the overall result was very successful for Mexico. CNH awarded 19 licence contracts. Mexico’s NOC, Pemex, participated in this bid round, winning two blocks as an individual bidder and one block in a consortium with Shell and another in a consortium with Chevron and INPEX, evidencing Pemex’s interest in learning from experienced operators. It is expected that the awarded blocks can commence production in ten years and reach 1.6 million barrels per day (bpd) by 2032.

On 1 March 2018, CNH announced the first unconventional bid round (“Round 3.3”) on 1 March 2018. This new bid round comprises nine onshore unconventional blocks for exploration and production, which are located in the Burgos Region in Tamaulipas, covering 2,704 sq km collectively, with conventional prospective resources of approximately 53 MMBOE and unconventional prospective resources of approximately 1,161 MMBOE. The blocks in this round will be awarded based on a licence contract and include both wet and dry gas. The expected investment is approximately USD2.3 billion if all blocks are awarded.

On 27 March 2018, CNH awarded 16 of the 35 Production Sharing Contracts (“PSC”) for shallow water blocks in “Round 3.1”. Pemex was the biggest winner of this bidding procedure by winning one block as an individual bidder and six blocks in several consortia with companies such as DEA, Compañia Española de Petroleos (CEPSA), Total and Shell.

On 26 April 2018, CNH announced the so-called “farm-out” bid process, CNH-A-C6-7 Asociaciones/2018. This new bid round comprises seven onshore conventional blocks for exploration and production that are located in the states of Veracruz, Tabasco and Chiapas, covering collectively 4,580.8 sq km. CNH estimates these blocks have conventional prospective resources of approximately 405.1 million barrels of crude oil equivalent. The blocks in this bid round will be awarded based on a licence contract. The presentation and opening of proposals is scheduled for 31 October 2018.

In November 2017, CNH published in the Federal Gazette the amendments to the Well Drilling Guidelines. Some of the modifications were: (1) Operators shall register before the CNH the personnel that will operate Critical Equipment; such personnel shall have at least five years of operational experience, (2) Amendments to the definition of “Pozo Tipo”, now exclusively refers to wells on unconventional onshore, lake or shallow water fields, (3) Elimination of CNH’s authorisation requirement to drill certain types of wells (development, hydrocarbons storage and injector wells) and (4) CNH reduced the statutory term to issue authorisations, for Pozos Tipo and Exploratory Wells 35 business days and for deep-water and ultra-deep-water wells, 45 business days.

On 18 May 2018, Pemex published its new General Contracting Provisions for Pemex and its Subsidiaries: the provisions cover aspects such as planning, programming and budgeting, strategic supplies, procurement procedures for goods, leases, works and services, contractual alliances, contracts and agreements, social witnesses, among others. These provisions cancel the ones approved on 18 November 2014 as well as all their modifications.

Also on 18 May 2018, SENER published the modifications to the Federal Law to Prevent and Sanction the Crimes Committed in the Hydrocarbons Sector. The purpose of these modifications is to increase the penalties for those who rob and traffic fuels in national territory. The penalties go up to 30 years in prison and fines of up to 25,000 times UMA.

Natural Gas

In March 2018, the Ministry of Energy (Secretaría de Energía) (“SENER”), with the technical support of CRE and CENAGAS, undertook the first annual review of the Five Year Natural Gas Plan 2015-2019, which includes the list of social and strategic projects that are expected to be developed during that period. The natural gas projects that will be developed during the next few years include the following:

•       Jaltipan-Salina Cruz Pipeline: the scheduled operation date for this project is in 2018-2019, and the approximate investment is USD643 million. With a 12-inch diameter, a length of approximately 247 km and a capacity to transport 90 MMcfd, this pipeline will supply natural gas to four projects:

a)       reconfiguration of the Salina Cruz refinery;

b)       a co-generation plant in Salina Cruz;

c)       a liquefaction plant in Salina Cruz; and

d)       export to Central America.

•       Salina Cruz-Tapachula: this pipeline will contribute to the economic development in the States of Oaxaca and Chiapas through the attraction of private investment for the installation of productive plants in the region. It will have an approximate length of 440 km and the estimated date of commercial operation is scheduled for 2018. The approximate investment for this project is USD442 million.

•       Lazaro Cárdenas-Acapulco: the project comprises a 331km pipeline. The commercial operation estimated date is scheduled for 2019 and the approximate investment is USD456 million.

In June 2017, the CRE liberalised the price for first sales of natural gas. This is a major step in Mexico’s energy reform since new competitors in the natural gas sector can now participate by offering prices according to market demand.

On 28 March 2018, The Ministry of Energy (“SENER”) published the Natural Gas Storage Public Policy whose purpose is to establish the incentives to have operative and strategic storage to contribute to build up natural gas supply. The Public Policy established the following obligations:

•       Permit-holders must report periodically volumes produced, transported, stored and distributed.

•       CENAGAS must maintain 45 billion cubic feet of stored natural gas as strategic inventory, equivalent to five days of national consumption.

•       CENAGAS must carry out the necessary actions to have access to an operative inventory in the storage terminals of liquefied natural gas, to contribute to the natural gas supply for the users of its systems.

CENAGAS announced that this year it will launch a bidding process to build the first storage infrastructure for natural gas in Mexico. It is expected that derived from this bidding process 10 billion cubic feet may be stored in depleted reservoirs.

The zones to build this infrastructure are located in Tamaulipas, Tabasco and Veracruz in the following depleted oil fields:

•       Acuyo

•       Brasil

•       Jaf

•       Samarako

The selection of the depleted oil field will be through a nomination process which will allow interested companies to propose, in a non-binding manner, the development of a field for strategic storage purposes, providing technical, economic, legal and social arguments.

CENAGAS will analyse the nominations received and will select the field that provides the best conditions to trigger the strategic storage infrastructure project.

The scheduled for the first stage of the project is the following: (i) May –June, Data Room access, (ii) July – August, nomination process and (iii) August – September, preparation of bidding guidelines. It will be during the second half of the year when CENAGAS launches the bidding process for the development of natural gas storage infrastructure.

Fuels

The Federal Revenue Law for 2018 (Ley de Ingresos de la Federacion para 2017) established the criteria regarding early price liberalisation for gasoline and diesel beginning in 2017. On 8 November 2017, CRE announced the fourth and fifth stages of gasoline and diesel market liberalisation. These stages include the states located in the Yucatan peninsula and those in Central Mexico. With this announcement, each gas-station owner can determine the corresponding fuel prices to be offered to its customers in such areas. From April 2016 to March 2018, SENER has issued 332 permits for gasoline imports and 457 permits for diesel imports.

Because of the acceleration of gasoline price liberalisation, the CRE approved on 24 November 2016, the open season and related general terms and conditions for fuel storage and pipeline transportation for Pemex’s facilities. Storage and pipeline transportation facilities owned by Pemex and located in Northern Mexico will be the first in which private parties may reserve capacity. Interested parties must prequalify for this open season.

The open season is divided into two stages. The first stage comprises Pemex's storage and transportation facilities located in Rosarito, Ensenada, Mexicali, Nogales, Magdalena, Hermosillo, Guaymas, Cd. Obregon, and Navojoa. In a second stage, parties may bid to reserve capacity in Pemex's storage and transportation facilities located at Cd. Juárez, Chihuahua, Parral, Gómez Palacio, Sabinas, Monclova, Saltillo, Nuevo Laredo, Santa Catarina, Cadereyta, Cd. Mante, Reynosa, Cd. Victoria, and Madero. The winner in the first stage of the open season for both systems (Baja California and Sonora) was the US refiner and fuel marketer Tesoro, with a total capacity of 320,679 barrels of storage capacity and 9,535 barrels/day of pipeline capacity.

On 22 May 2018 Pemex published the call for the Open Season to reserve capacity in gasoline and diesel pipeline storage and transportation systems for the North and Pacific Zones. The capacity award will take place on 24 July 2018.

The NOM-016-CRE-2016 was amended on 26 June 2017 to include the following changes: (i) the addition of 10% volume ethanol to gasoline is now allowed in Mexico, except in Guadalajara, Monterrey and the Valley of Mexico, and (ii) additives may be added to the gasoline by any permit-holders at their facilities, provided that they comply with the specifications found in NOM-016-CRE-2016.

On 25 January 2017, the Supreme Court of Justice of Mexico (“SCJN”) resolved a case in which Pemex was accused of monopolistic practices by bundling fuel supply and transportation services to service-station purchasers. Although the SCJN’s decision related to events pre-dating the 2013 energy reform and favoured Pemex, the SCJN held that the supply of fuels to gas stations cannot be conditioned or tied to specific transportation services required by Pemex or a Pemex-directed third party. The decision, although not yet mandatory under Mexican jurisprudence on lower courts, will be persuasive and should help promote entry of new competitors into the recently opened fuels market.

On 12 December 2017, SENER published the Fuels Storage Public Policy (Política Pública de Almacenamiento Mínimo de Petrolíferos) (“Storage Policy”), whose purpose is to have sufficient inventory of gasoline, diesel, and jet fuel in the country on a regional and market-oriented basis within Mexico to reinforce fuel supply in emergency situations, and to foster the construction of new storage infrastructure. The Storage Policy establishes two main obligations:

1.       To report on a weekly basis to SENER the production, imports, exports, sales, and storage volumes of gasoline, diesel, jet fuel, and fuel oil. This obligation must be satisfied by importers, exporters, storage permit-holders, marketers, and distributors.

2.       To oblige marketers and distributors to maintain a minimum storage inventory to supply fuels to gasoline stations and final users. During the first 15 days of December 2019, the marketing and distribution permit-holders must report to the Energy Regulatory Commission their existing inventories to determine their storage obligations for 2020. Retailers will not be subject to this obligation.

Refining

Mexico has six refineries: Tula, Salamanca, Cadereyta, Minatitlán, Madero and Salina Cruz. Three of them need major upgrades. Pemex hired an investment banker to select partners with the best business plans to upgrade the refineries owned by Pemex Transformación Industrial. A short time ago, Pemex announced it had reached two alliances with Air Liquide and Praxair.

On 7 February 2018 SEMARNAT published the draft of these Provisions, the purpose of which is to establish the obligations, requirements of Industrial Safety, Operational Safety and environmental protection that the Regulated Parties must meet for the Design, Construction, Pre-Start, Operation, Maintenance, Closing, Dismantling and Abandonment of Oil Refining Facilities, to prevent any damage to people, facilities and the environment.

Production, Imports and Exports

As of the first quarter of 2018, the data corresponding to the production, import and export of hydrocarbons is the following:

•       Production:

o       Oil: 1,882 mbpd

o       Natural gas: 4,834 mcfpd

•       Imports:

o       Natural gas: 4 bcfd

o       Oil products: 1266 mbpd

o       Petrochemicals: 225.122 tons

•       Exports:

o       Natural gas: 0.370 mcfpd

o       Oil products: 48.805 mbpd

o       Petrochemicals: 6.668 tons

Electric Power

As a result of the 2013 Energy Reform, participation in the electric power industry, such as power generation, was opened to competition and a wholesale electricity market was introduced to facilitate trading under the supervision of CENACE, an independent system and market operator. Private transmission and distribution companies operate under contract with the CFE and its subsidiaries since these are still considered to be public services.

New Corporate Structure of CFE

CFE, like Pemex, was a decentralised public entity (organismo público descentralizado) prior to the Constitutional Energy Reform of December 2013. Now, like Pemex, CFE is a productive state company (empresa productiva del estado). CFE may enter into any kind of agreements with private parties under the contracting schemes ensuring the best profitability and productivity, and share costs, expenses, and risks to achieve its corporate purpose. Therefore, CFE is entitled to undertake all the activities, either in Mexico or abroad, set forth in its corporate purpose.

CFE may incorporate subsidiary companies and affiliates to undertake different activities either in the power sector or in certain areas of hydrocarbons, with the exception of oil and gas exploration and production. CFE’s subsidiaries are created by CFE’s Board of Directors and are governed by the special organisational regime established in the law of the CFE, while CFE’s affiliates are mercantile companies which can be incorporated in Mexico or abroad. CFE shall participate in the affiliates, directly or indirectly, with at least 51% of the corresponding capital stock. Unlike subsidiaries, CFE’s affiliates are governed by the laws of the location where they were incorporated.

The CFE has incorporated four affiliates: CFENERGÍA S.A. DE C.V.; CFE Intermediación de Contratos Legados S.A. de C.V.; CFE Calificados, S.A. de C.V.; and CFE International LLC. This last affiliate was incorporated under the laws of Delaware and will be governed by the laws of that state.

Some of the key regulations issued in 2017 and part of 2018 in connection with the electric power sector include the following: Manual for Bilateral Transactions; CFE Transmission Rates; Manual for Interconnection with Power Plants with less than 0.5 MW Capacity; Manual for Capacity Balance; Manual for Assigning Legacy Financial Transmission Rights; Manual for the Registration of Market Participants; Manual for Market Information System; Manual for Short-Term Energy Market; Manual for Legacy Interconnection Agreements; Creation of CFE Subsidiary Entities; Manual for Invoicing and Payments; Manual for Dispute Resolution; Guidelines to Operate the Qualified Users Registration; Calculation Methodology and Basic Supply Final Tariffs; Clean Energy Certificates (“CELSs”) Management System, Natural Gas Co-ordination Guidelines; Measurement Settlement Guidelines; Guidelines for Power Dispatch and Unbundling Criteria for Joint Ownership Power Plants; Market Monitoring Guidelines and Guidelines for Interconnection of Power Plants and Connection of Load Centers.

On 15 May 2018 the National Commission for the Energy Efficiency (CONUEE) published the Federal Public Administration Energy Efficiency Guidelines. These guidelines are mandatory for all real estate, vehicle fleets, equipment and energy-consuming devices of the agencies and entities of the Federal Public Administration in order to make efficient use of energy and apply criteria for sustainable use of energy, in the acquisitions, leases, works and services that they hire.

New Projects

As part of the strategy to transition to clean energy sources, renewable energy projects will be reinforced with the construction of transmission grids that will be developed together by the CFE and private parties using new contracting schemes, such as PPP (in contrast, PPP are not allowed in the petroleum sector) and joint ventures.

In August 2017, SENER published the Development Program for the National Electric System 2017-2031 (“PRODESEN”) which includes plans to develop the infrastructure for the National Electric System’s (“SEN”) transmission and distribution lines and updates the former PRODESEN 2016-2030. The PRODESEN substitutes the former Works and Investments Program of the Energy Sector (“POISE”) which was prepared by the CFE.

The PRODESEN contemplates an additional capacity of 55,840 MW, resulting in investments of approximately MXD1.7 billion pesos. The additional capacity will be comprised of conventional technology (37% – mostly combined cycle plants) and clean energy (63% – efficient co-generation, wind and solar projects).

In this regard, the expansion, upgrade and operation of the transmission and distribution projects contained in the PRODESEN may be developed by private parties using the PPP scheme and the Independent Power Transporter scheme (Transportista Independiente de Energía) (“IPT”).

The PPP scheme is designed to address the concerns of infrastructure developers, establishes guidelines for the allocation of risks and liabilities among the public and private investors and improves the bankability of the projects.

However, under the aegis of the IPT scheme, the private investor will finance, construct, temporarily own, operate and maintain the transmission facilities; the development risks and costs will be assumed by the developer and the due payment to the contractor will be based on capacity charges and O&M charges. Projects under the IPT regime will be awarded through a bidding process.

On December 7th, the Ministry of Energy (“SENER”) announced the first bidding process for the financing, installation, maintenance, management, and operation of the Baja California Electric System interconnection with the National Grid (“National Grid”). This is the first power transmission project allowing private participation in power transmission lines in Mexico. The estimated investment will be USD1.1 billion.

The project would interconnect the Baja California electric system to the National Grid through a direct current tie between the Cucapah substation in Mexicali and the Seri substation in Hermosillo. The project includes two Converting Stations and a High Voltage Direct Current Transmission Line (HVDC), with an estimated length of 1,400 km, a voltage level of 500 kV, and transmission capacity of 1,500 MW.

On 13 February 2018, Mexico’s Federal Electricity Commission (“CFE”) announced the bidding process for its Ixtepec Potencia – Yautepec Potencia Transmission Line in Oaxaca (“Project”). The transmission lines will cross the following states: State of Mexico, Morelos, Puebla, Oaxaca, Mexico City and Veracruz. The estimated investment is USD1.7 billion and it will have a transmission capacity of 3,000 MW at a voltage level of 500 kV.

The Project will be awarded under the BOT model (Build, Operate and Transfer), in which a private contractor will (a) develop, manage, build, perform the corresponding tests and achieve commercial operation of the transmission system, (b) operate and maintain the AC transmission system, (c) transfer all the rights, licences, permits, authorisations and property of the reinforcement work to CFE on the Commercial Operation Date (“COD”) and (d) transfer all the rights, licences, permits, authorisations and property of the DC transmission system to the CFE on the COD.

Long-Term Auctions

As part of the liberalisation of the electricity market, the Mexican Government, through CENACE, annually calls on private parties to participate in long-term auctions that are transparent mechanisms to award long-term electricity coverage contracts. Investors can bid to enter into 15-year contracts for the supply and purchase of power and capacity and 20-year contracts for clean energy certificates (CELs).

The CELs are titles supporting a determined amount of power generation from clean energy sources (eg wind, solar, bioenergetics, nuclear, geothermal, efficient co-generation, etc) whose purpose is to meet the clean energy requirements associated with the consumption of the load centres or load points receiving power supply.

Entities representing a power plant or other facility generating power from clean energy sources are eligible to receive from the CRE one CEL for each megawatt-hour (MWh) of power generated without using fossil fuels. If fossil fuels are used for power generation, the eligible clean generator is entitled to receive one CEL multiplied by the percentage of that facility’s output which was not generated using fossil fuel.

In November 2017 CENACE announced the results for the third long-term auction. Sixteen projects were awarded, totalling 593 MW of power, 5,942 GWh of energy and 5,952 CELs. The awarded projects account for a total of 2.7 GW of capacity to be installed. Regarding the awarded technologies, Photovoltaic represents 48%; wind represents 31% and turbo-gas 20% of the total capacity. It is expected that all of these projects will bring a total investment of USD2.4 billion.

On 15 March 2018 CENACE announced the fourth long-term auction for the purchase and sale of power, capacity, and clean energy certificates. The term of the contracts for power and capacity will be 15 years while the term for clean energy certificate contracts will be 20 years. The standard commercial operation date of the power generation projects awarded under the auction is scheduled for 1 January 2021.

It is important to highlight that the annual auctions to award Financial Transmission Rights took place for the first time in the first quarter of 2018, while the midterm auctions were held in the fourth quarter of 2017.

On 23 November 2017 CRE published Order A/058/2017 with the calculation methodology for the final tariffs for basic supply that will apply from December 2017 to December 2018 to all customers whether individuals or companies who are not Qualified Users. The new scheme considers the cost of each part of the value chain in the power industry, and incorporates the seasonal variations of the cost of the service (depending on the time of year) and seeks to guarantee that the Federal Electricity Commission (“CFE”) recovers efficient costs.

Anti-Corruption and Transparency Regime

An important advance in 2016 was the enactment of a new legal framework to implement the 2015 anti-corruption constitutional reform. This legal framework is comprised of the General Law for the National Anti-corruption System, the Organic Law of the Federal Tribunal for Administrative Justice, the General Law for Administrative Responsibility, and amendments to the Federal Criminal Code and the Organic Law of the Federal Public Administration (collectively referred to as the “National Anti-corruption System”).

The National Anti-corruption System will be responsible for the nation-wide anti-corruption policy and for establishing the guidelines that all levels of government (executive, legislative and judicial branches, either federal or local as well as to the public officials of the autonomous entities such as the Federal Economic Competition Commission, Energy Regulatory Commission, National Hydrocarbons Commission, and the Central Bank) and personnel of Pemex and CFE (except for their Board Members) must follow for the prevention, identification, and sanction of acts of corruption and crimes committed by public officials and private parties. The Anti-corruption System mandates the creation of a National Digital Platform as a public registry of all private parties and public officials banned from participating in government contracting processes. The National Anti-corruption System does not abrogate, but rather complements existing anti-corruption laws, such as the one found in the Hydrocarbons Law.

The General Law for Administrative Responsibility establishes the rules and guidelines to prevent and sanction unlawful conduct in administrative procedures, influence peddling, bribery, wrongful exercise of public funds, improper hiring of former public officials, collusion in public bid procedures (including procedures called by foreign entities), and use of false information to apply for administrative permits or authorisations, among other acts of corruption. To support compliance, public officials will now be obliged to disclose existing assets, potential conflicts of interest and their tax returns.

The General Law for Administrative Responsibility imposes the following mechanisms for private parties to prevent corruption:

•       organisational guidelines establishing the areas in charge of doing business, with the government identifying in a hierarchical manner the responsibilities of each one;

•       a code of conduct;

•       recruiting policies addressed to detect potential liabilities when conducting business with the government; and

•       monitoring procedures and accountability for the company’s personnel.

Furthermore, reduced sanctions will be assessed against companies collaborating during investigations or whistle-blowing. Sanctions may increase if the partners, board of directors, or internal auditor(s) of a company are aware of the corrupt practices and do not report them and the individuals involved. Private parties confessing their participation in any act of corruption may obtain a reduction of up to 70% of the economic sanction.

Arbitration and Dispute Resolution

Under Articles 118 of CFE Law and 115 of Pemex Law, CFE and Pemex, respectively, are entitled to compromise in arbitration and any other dispute resolution alternatives to be agreed by them and by their subsidiaries based on commercial law and international treaties.

The arbitration procedures found in the contracts awarded by CFE during the long-term auctions and in the tenders for natural gas transportation services are governed under the rules of the London Court of International Arbitration. In both cases the place of arbitration shall be Mexico City and the federal laws of Mexico shall apply.

However, the arbitration procedures of E&P contracts awarded by the CNH are governed by the rules of the United Nations Commission on International Trade Law. In this case, the place of arbitration will be in The Hague, Netherlands.

Mexico is a party to the New York Convention on the Enforcement of Foreign Arbitral Awards. Therefore, the arbitral awards resulting from contracts subject to arbitration are enforceable in Mexico before a District Judge. 

On 11 January 2018, Mexico gained access to the International Centre for Settlement of Investments Disputes (“ICSID”) Convention. ICSID is an intergovernmental organisation of the World Bank which provides support services and procedural rules for the conciliation and arbitration of investment disputes. ICSID serves as a specialised and impartial system for resolving investment disputes, avoiding favouritism on the part of local courts or the use of diplomatic protection for its resolution.

With Mexico’s addition to the ICSID, all international investment disputes that are initiated against it may be subject to the conciliation and arbitration rules established in the Convention. Also as a member of the ICSID, Mexico will be able to participate in the decision-making process of the organisation.

Conclusions

The legal framework of the 2013 Constitutional Energy Reform has made significant advances over the last few years, and it is expected to continue with the upcoming years. Implementation continues to move at a rapid pace. Despite external factors and global issues, Mexico continues to attract billions of dollars into the energy sector. By the end of the current federal administration in Mexico, it is expected that more than USD200 billion in direct and indirect commitments will be awarded based on the energy reform. This represents a massive amount of foreign investment committed to Mexico. The major pending action for the next President of Mexico is improving the rule of the law. This is key to continue to attract the required foreign investment into Mexico and to provide legal certainty to all participants. 

2018 is a particularly complex year for Mexico and for the UD Mexico relationship in light of the NAFTA renegotiation, the Presidential elections on July 1, 2018 in Mexico and the mid-term elections in the US.

Despite the foregoing, the first half of 2018 continues to be quite active with new energy infrastructure projects such as CENACE’s fourth long-term auction, CNH’s bid Rounds 3.2 and 3.3 and the Baja and Oaxaca Transmission lines, but towards the end of 2018 we should see a slow-down and delay of new projects.

The new administration in Mexico begins a new six-year term on 1 December 2018, and in the first semester of 2019 we should see a normal slow-down due to new officers being appointed, including the new Secretary of Energy who will be in charge of Mexican energy policy for the next six years. Other major changes should take place at Pemex, CFE and ASEA. At the CRE and CNH we do not expect significant changes because the Commissioners will continue in their roles for the duration of their respective appointments.

Haynes and Boone, SC

Torre Esmeralda I, Blvd.
Manuel Ávila Camacho #40
Despacho 1601
Col. Lomas de Chapultepec
11000
Ciudad de México

+52.55.5249.1867

+52.55.5249.1801

nicolas.borda@haynesboone.com www.haynesboone.com
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Haynes and Boone, SC is one of the most active US law firms operating in Mexico, serving a growing list of both international and Mexican clients. The fully bilingual Mexico City office – with lawyers licensed in Mexico, the USA and Argentina – has been serving clients for more than 23 years and has grown into a full-service firm, with practice areas complementary to energy such as environmental, M&A, maritime, regulatory, international trade and tax. Haynes and Boone also serve clients from 15 other offices, including energy and financial hubs such as Houston, Denver, London and New York. The team has been particularly active assisting clients involved in the different E&P bid rounds of CNH, several migrations of service contracts to E&P contracts, financing renewable energy projects, representing buyers and sellers of solar projects, representing clients in CENACE’s long-term auctions, obtaining open seasons for transporting fuels by pipeline, negotiating with PMI for the sale of natural gas and crude oil, obtaining permits and registrations before the CRE, SENER and CENACE, interacting with Pemex and CFE, and assisting clients with import and distribution of fuels.

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