Mexico’s Bill to Amend the 13th Transitory Article of the Hydrocarbons Law

On May 4th, 2021, the decree amending and adding various provisions to the Hydrocarbons Law (the Law) was published in the Federal Official Gazette.

In addition to the amendments and additions referred to in a Greenberg Traurig Alert published in April 2021 (Mexico’s Bill with Draft Decree to Amend and Add Various Provisions to the Hydrocarbons Law), on April 21, 2021, the Chamber of Deputies approved the draft decree that amends the Thirteenth Transitory Article of the Law (the Bill), which was sent for review to the Senate, and approved on April 29, 2021.

The Bill addresses the following:

Asymmetric Regulation: General Framework

The current Transitory Article 13 of the Law authorizes the Energy Regulatory Commission (Comisión Reguladora de Energía, CRE) to impose certain rules on Petróleos Mexicanos (Pemex) to limit its dominating power in the market, including:

• the regulation of first-hand sales of hydrocarbons, petroleum products (petrolíferos), and petrochemicals under principles of asymmetric regulation;

• defining the concept of “first-hand sales” by Pemex and the specific locations where such sales shall be carried out;

• provisions for the  commercialization of hydrocarbons, petroleum products, and petrochemicals by Pemex, its subsidiary entities, and any other productive entity of the Mexican State or an entity acting for the benefit of the Mexican State, shall segregate the services provided and the first-hand sales price;

• the approval and issuance of the general terms and conditions for first-hand sales and the methodology for price calculation;

• provisions for specific penalties for non-compliance with the regulation; and

• non-discrimination provisions of the Law that are applicable in all cases.

This Transitory Article established that the aforementioned regulations will be in force until a more competition is achieved, to promote development of the markets.

In relation to the above, the CRE issued Resolution RES/156/2016, published in the Federal Official Gazette on March 22, 2016, which contains an asymmetric regulation for Pemex for the first-hand sales and the commercialization of gasoline and diesel (the Terms and Conditions), which state:

• Pemex is obligated to include the right of the client to terminate the agreement with a 30-day notice in its first-hand sales and commercialization agreements, restricting Pemex’s right to penalize terminations notified with a lesser term;

• Pemex is prohibited from imposing any type of exclusivity under first-hand sales and commercial agreements for clients and may not restrict clients from hiring or marketing products or services other than those offered by Pemex;

• Pemex is obligated to adjust its first-hand sales and commercialization agreements to the Terms and Conditions, and to provide the CRE with a copy of the model agreement;

• Pemex is obligated to make information publicly available regarding each agreement signed with purchasers of gasoline and diesel under commercialization agreements; and

• Pemex is obligated to disclose the price breakdown, including transportation, storage and distribution costs, taxes, retail margin, and any other relevant concept in all invoices to clients for the commercialization of gasoline and diesel, and provide the CRE with a copy of the model invoice.

In addition to RES/156/2016, the CRE also issued resolution RES/2508/2017, to regulate how Pemex determines the purchase price of first-hand sales and sales made at storage terminals. The resolution also regulates what discounts are granted by Pemex, so that:

• they are not unduly discriminatory;

• they are not conditional on the contracting of other services or the purchase of other products offered by Pemex;

• the scale of discounts may be different for first-hand sales and those made in storage terminals; and

• the criteria for granting discounts must be public.

Resolution RES/2508/2017 also states that once the CRE determines that entities other than Pemex cover at least 30% of the joint sales of gasoline and diesel, Pemex may freely determine the maximum price of first-hand sales and those made in storage terminals.

Finally, the CRE issued the resolution A/057/2018, which annulled RES/2508/2017, and provided that until it is determined that 30% of the joint sales of gasoline and diesel are made by entities other than Pemex:

• Pemex will establish a single price for each first-hand point of sale and a single price list in each storage terminal, and be able to grant discounts due to volume, term, and payment conditions, as long as they:

— are not unduly discriminatory;

— are not conditional on the contracting for other products or services offered by Pemex; and

— are not below the average cost for each first-hand point of sale or list price at each terminal.

• Pemex must present a daily report to the CRE with the first-hand sales prices and sales prices in storage terminals.

Notwithstanding the above, the CRE concluded that a greater participation of entities in the market other than Pemex has been achieved, which resulted in resolution A/043/2019, which annulled resolution A/057/2018. The new resolution did not provide a methodology for Pemex to calculate the maximum price to replace the previous method. Instead, it established that the price calculation methodology would be issued by the CRE only if it was identified that Pemex was involved in unduly discriminatory practices. Therefore, an important part of the asymmetric regulation of setting a methodology for Pemex to calculate the first-hand sale prices of diesel and gasoline was left out, however, various resolutions of the CRE regarding asymmetric regulation remained in force.

The Bill and its Effects

The Bill proposes to amend the 13th Transitory Article of the Law to provide:

• that a greater participation of entities resulting in the efficient and competitive development of the markets has been achieved;

• based on the foregoing, it terminates the authority granted to the CRE to regulate  Pemex’s first-hand sales of hydrocarbons, petroleum products, and petrochemicals, as well as the commercialization of such products by persons controlled by Pemex or its subsidiaries; and

• that the sale of the aforesaid products by Pemex, its subsidiaries, or an entity acting for the benefit of the Mexican State, shall be considered as commercialization by the Law, and consequently the non-discrimination provisions of the Law shall apply.

The Bill states that the amendments shall become effective on the day following its publication, providing for a 30-day term for the CRE to void all its resolutions issued under the original 13th Transitory Article. The Bill will terminate the asymmetric regulation currently in place pursuant to the  13th Transitory Article of the Law, hence Pemex shall:

• continue to be subject to the special regulation provided in the 14th Transitory Article of the Law concerning the termination of supply agreements for gasoline and diesel;

• continue to be subject to the non-discrimination obligations provided by the Law applicable to any holder of a permit for commercialization of petroleum products; and

• continue to be subject to the provisions of the Federal Law of Economic Competition.

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