History continues to be made. Some months ago, we informed of the strategic Constitutional reforms that were enacted in our Country. Today, Mexico has done the almost impossible; pass through a divided party Congress, the secondary laws needed to implement the Constitutional Reforms of earlier this year, being the Energy and Telecommunication reforms the subject matters of this alert.
In addition to amendments to several different existing laws, the Energy Reform contemplates the publication of nine new laws, as follows: Hydrocarbons Act; Hydro- carbon Revenues Act; Creation of the National Agency for Industrial Security and Environmental Protection of Hydrocarbon Sector Act; Petroleos Mexicanos Law; Mexican Oil Fund for Stabilization and Development Act; Electric Industry Law; Geothermal Energy Act; Federal Electricity Commission Law; New Law of the Coordi- nated Regulatory Agencies in Energy Sector.
The main topic and what marks the threshold in these Reforms, include the opening of exploration and production of hydrocarbons to private entities by allowing them to contract directly with Petroleos Mexicanos and its subsidiaries and the award of exploration and production contracts.
The New Hydrocarbons Law has as purpose the regulation of survey and surface exploration; the exploration and production of hydrocarbons; the treatment, refining, sale, marketing, transportation and storage of oil; transport, storage, distribution, marketing, and retail sales of natural gas; processing, compression, regasification, amongst other procedures, of natural gas. The Law enables Mexican government, through its different entities, to enter into agreements with private parties to carry out exploration and production activities. Also, it establishes specific rules for the granting of awards in public bids thus to avoid corruption.
As for the amendments to existing laws related to Hydrocarbons, the Foreign Invest- ment Law modified its language to allow private companies to engage in the above mentioned activities, amongst others, through licenses, profit sharing and production sharing agreements or the combination of the three. It also deleted restrictions in the investment in activities such as petrochemicals, retail sales of gasoline and distribution of LP gas. As for the current Mining Law, it foresees that oil and exploration and production will have a preferential status over mining activities although it also establishes concurrent rules. Those existing provisions pertaining to coalbed methane gas are eliminated and transferred to the New Hydrocarbons Law. Finally and regarding the Public Private Partnership Law, the restraint of implementing public-private partnership restrictions is eliminated.
As per the National Agency for Industrial Security and Environmental Protection of Hydrocarbon Sector Act, it creates the new Agency to regulate and protect individuals, environment and hydrocarbons facilities and activities. This Agency will regulate and supervise the industrial and operational safety, the decommissioning and abandonment of facilities and the integral control of waste and emissions, amongst others.
Another innovation is the New Electric Power Industry Law which main purpose is to govern the planning and control of Mexico’s electrical power system, transmission and distributions services. As a novelty, this new Act opens electric generation and commercialization services to private companies, creating new market opportunities to private sector in the fields of producing, trading and supplying.
The amendments to previous laws includes the Foreign Investment Law whereto the restriction of this activities to the State is removed, reserving to the latter the planning and control of national electricity system activities. As for the current Mining Law, it foresees that public transmission and distribution service of electricity will have a preferential status over mining activities although it also establishes concurrent rules. In connection with Geothermal Energy, the new law on the subject matter, regulates surveying, exploration and production of geothermal resources. Private sector is entitled to obtain concessions for these activities. The previously existing National Water Law is amended to include geothermal activities within its concessions regula- tion. In connection to the amendments, the National Water Law now includes the obligation of obtaining a permit prior to conducting any exploration wells.
The New Federal Electricity Commission Law provides specific norms to regulate the organization, functioning, administration, operation, control assessment and accountability. Specific regulations for subsidiaries, responsibilities, acquisitions, leases, services, open bidding processes, debt and budget are enacted.
Oil & Gas
A totally new Petroleos Mexicanos Law, substitutes the prior one and provides specific norms to regulate the organization, functioning, administration, operation, control assessment and accountability of Petroleos Mexicanos. It obliges Petroleos Mexicanos to have a complete new Board of Directors. Specific regulations for responsibilities, acquisitions, leases, services, open bidding process’s, debt, budget and state dividends are enacted.
New Law of the Coordinated Regulatory Agencies in Energy Sector. This new law will regulate the organization and functioning of the Agencies on the subject matter and establishes their authority.
There are other amendments to existing laws that affects the sector tax regime and the payment of governmental fees for services.
At a glance, all of the above mentioned reforms and amendments seek to open domestic and foreign private investment in the different sectors of the energy sector arena. The Mexican Government expects an unprecedented wave of private investment by companies ranging from the classic participants in the sector to new companies. Intellectual Property will certainly play a major role under these new reforms since it will enact its owners to participate in public bids with the advantage that the technology owned could bring direct awards to their rightful-owners, pursuant to the terms and conditions of each public bid and the regulations established in the particular laws of the sector. Licensing agreements will also have an exceptional importance since it will enable Mexican and Foreign companies to participate in public bids with the same advantages as an owner of Intellectual Property Rights. With expected private investment of more than one hundred thousand million dollars or more than 100 billion dollars within the next 4 years, Mexico is certainly OPEN FOR BUSINESS.
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