Background

On December 20, 2013, the DOF published the amendments to the Mexican Constitution regarding energy matters, which became effective the day after its publication.

On April 30, 2014, the Federal Executive Branch submitted the initiatives of the secondary legislation regarding energy matters to the Senators’ Chamber for their review and approval.

The initiatives were enacted by the Federal Government, in accordance with procedures for the enactment of legislation, and were published in the DOF on August 11, 2014 (the Secondary Legislation).

Secondary Legislation

The Secondary Legislation is comprised of 21 laws, divided into 9 blocks, which create 9 new laws and amend 12 existing laws.

This integral Energy Reform fully opens the Mexican oil and gas industry to 100 percent foreign investment in:

• Upstream Activities: Before, it was only possible to execute performance-based service contracts; however, the Secondary Legislation will also allow production sharing contracts (PSC), profit sharing agreements (PSA) and license agreements. This will attract all kinds of operators in deepwater, shale, shallow waters, mature fields, etc.;

• Midstream Activities: In addition to transportation of natural gas, companies now may through permits transport and store petrochemicals and refined products; and

• Downstream Activities: Private companies may carry out refining and commercialization of fuels, as well as LPG distribution activities. As of January 1, 2016, the Energy Regulatory Commission (CRE) may grant permits for retail sales of gasoline and diesel to the public.

In connection with the electricity industry, the major structural changes are the following:

• Liberalization of power supply and generation to allow private investment.

• Creation of a new power market for qualified users.

• Autonomy of the independent system operator (ISO) (CENACE).

• The national grid may be expanded, operated and/or maintained by private companies through agreements executed with the State.

• New Geothermal Energy Law and opportunities of investment in this area.

As explained in this GT Alert, there are still restrictions on activities related to the transmission and distribution of electricity.

Other relevant issues of the Secondary Legislation:

• Creates the National Industrial Safety and Environmental Protection Agency in the Hydrocarbons Sector.

• Creates the National Control Centre of Natural Gas (CENAGAS) to act as an independent manager and administrator of the national integrated transport and storage system for natural gas.

• Creates the Mexican Oil Fund for Stabilization and Development.

• Allows more autonomy to be granted to CFE and PEMEX.

• Strengthens regulatory agencies (CRE and CNH).

Additional laws or amendments to existing laws may be introduced to Congress later this year to provide further changes regarding alternative energies and clean technologies.

It is expected that the regulations to the laws will be issued within three to six months.