On Wednesday, April 30, President Peña (EPN) submitted to the Chamber of Deputies draft secondary legislation package implementing the far-reaching energy reform proposed under the Pacto por Mexico. Although the reform was ‘passed’ by the legislature in December of last year, it lives largely a conceptual existence until the secondary legislation is passed. The proposed secondary legislation was reportedly closely planned and agreed upon by PRI and PAN, which gives the package a high likelihood of passing.
The secondary legislation package is divided up into 9 categories, with 21 legal modifications (9 new laws* and 12 amended laws):
- Hydrocarbons (Law on Hydrocarbons*; Law on Foreign Investment; Mining Law; Public-Private Partnerships Law)
- Electricity (Electricity Industry Law*)
- Geothermal (Geothermal Energy Law*; National Water Law)
- National Agency for Industrial Security and Environmental Protection of Hydrocarbon Sector (Law on the Nat’l Agency for Industrial Sec’y and Env. Protection of Hydrocarbon Sector*)
- Productive State Enterprises (PEMEX Law*; Law on the Federal Electricity Commission*; Law on Federal Public Entities; Law on Acquisitions, Leases, and Services of the Public Sector; Law on Public Works and Related Services)
- Regulators and Basic Law of Federal Public Administration (Law on Regulatory Bodies for Responsible Energy*; Basic Law of Public Administration)
- Fiscal (Hydrocarbons Revenue Act*; Law on Federal Rights; Fiscal Coordination Law)
- Law of the Mexican Petroleum Fund for Stabilization and Development (Law on the Mexican Petroleum Fund for Stabilization and Development*)
- Budget (Law on Federal Budget and Fiscal Responsibility; General Law on Public Debt)
- The reform reaffirms that oil exploration and extraction and the underlying resources are ‘strategic areas’ belong exclusively to the state.
- But to further the exploration and extraction cause, the state may offer concessions to PEMEX or enter into contracts with PEMEX or national or international private companies.
- The contract types will include – service (paid in cash), shared utility (paid by % of utility) or shared production (paid by % of production), or license agreement (contratos de servicios, de utilidad o produccion compartida, or de licencia)
- The contracts may be awarded only after a public tender; terms of the contracts must be made public
- The reform opens up the marketing, distribution, and sale of oil and gas products, as well as the construction of pipelines (basically everything post-extraction)
- Local content rules for exploration and production, ramping up to 25 percent by 2025
- Identifies the National Hydrocarbons Commission as the only body that may award contracts for exploration and production, and only after a public tender
- An entire chapter (Chapt. II, Arts. 83-89) deal with anticorruption/transparency, and establish information that must be disclosed, and establishes specific anticorruption offenses for participants in the contracting processs
- The reform aims to lower PEMEX’s tax burden from 79 to 65 percent
- Generally attempts to correct a historic wrong by giving PEMEX more autonomy over its operations and finances
- New obligations for PEMEX and CFE to make public certain information on their operations
- Establishes new transparent National Petroleum Fund to help stabilize the economy during economic shocks
Thus far, the reaction has been generally positive. Canacintra – a major industrial trade group – expressed its approval of the secondary legislation package immediately. BBVA Bank stated that the package as currently drafted will likely prove successful at attracting foreign investment to Mexico. Foreign industry experts seemed to agree with these assessments, citing the flexibility inherent in the reforms.