MAIN ISSUES OF THE AMENDMENT TO THE HYDROCARBONS LAW

Mexico City, April, 2021

On April 22 2021, the House’s Energy Commission approved the amendment that reforms and adds various provisions to the Hydrocarbons Law, with modifications.

Background

The Hydrocarbons Law was published in the Federal Official Gazette on August 11, 2014 and last it was last amended on November 6, 2020. This Law and its Regulations allowed the opening and transformation of the Hydrocarbons Market in our country.
As any positive law and in accordance with the current circumstances aimed to attain sustainable, productive and efficient development, several of its provisions could be amended. The purpose is achieving a balance between the rights and obligations that come with hydrocarbon exploration, extraction, marketing authorizations and permits, alongside the State’s duty to continue safeguarding the direct ownership over such resources and to comply with both the country’s legal framework and the International Treaties to which Mexico is a party.
As a result of the Federal Government’s tendency, its National Development Plan 2019-2024, from its “Policy and Government Core Concept” to radically revert the Energy Reform Legislation, with statements such as “Safeguarding National Interests and Security”, “Eradicating corruption, waste and the transfer of public assets and resources to private parties”, on March 26, 2021 a bill to amend the Hydrocarbons Law was sent to the House of Representatives.
The House’s Energy Commission issued its opinion and on its plenary session held last April 14, the bill was generally passed, with certain reservations that from a legal perspective don’t solve the violation of private parties’ rights, if passed that way. Now that the Senate has also approved the amendment, it will be signed and published in the Federal Official Gazette in order to come in force.

Justification of the Amendment:

The Federal Government alleges that the amendment to Articles 51,53, 56, 56, 57,86, of the Hydrocarbons Law, will strengthen certain areas such as: (i) the minimum storage of petroleum products, (ii) the authority’s administrative silence instead of being interpreted as a positive response shall be interpreted as a negative response to permit applications or requests filed with the Energy Regulatory Commission (CRE) or Energy Ministry (SENER), (iii) revoking permits granted when there is repeated default of the Law’s provisions, (iv) combating fuel smuggling and (v) suspending permits due to imminent danger to national security, energy security or for national economy.
The addition of section III to Article 51 of the Hydrocarbons Law, to allow the Energy Ministry to determine, at its sole discretion, that due to the lack of storage capacity, it may revoke both, the permits to be authorized and those currently complying with provisions such as the Public Policy on Minimum Petroleum Products Storage passed on December 12, 2017 and amended on December 6, 2019. This causes not only legal uncertainty for permit holders, but for all stakeholders in the hydrocarbons, petroleum products and petrochemicals market chain, violating acquired rights private parties without any legal justification whatsoever.
The amendment of Articles 53, 57 and a new Article 59 Bis will increase the SENER’s and the CRE’s discretionary powers to not resolve swiftly applications for authorizations or permits to transfer permit holders’ rights. The authority’s lack of response will now be considered a refusal to temporarily or definitively suspend or revoke permits, and in the event of occupation, intervention and recently added suspension, the authority, in order to continue the operation, may retain the services or state-controlled productive enterprises, instead of third parties, without being required to establish legal cause or follow any procedure if it considers that any permits or transfers imply imminent danger to national security, energy sovereignty or national economy.
In the event of recurrence of the conducts provided under section XII of Article 56 with respect to violations of clauses a) and h) of section II of Article 86, in addition to the applicable penalties provided in the Law, the relevant permit will be revoked.
The implementing articles of the bill, including the Third, Fourth, Fifth and Sixth article confirm the negative impact on private parties’ rights. If passed. the bill would imply clear violation of the constitutional framework and international treaties, given the effects caused by a suspension or revocation of permits and the effects of a temporary occupation, which is comparable to indirect eminent domain.
On April 12, 2021, the Federal Antitrust Commission published considerations regarding the adverse effects caused to free competition in the production, import, transportation, storage, distribution and public market sale of hydrocarbons, petroleum products and petrochemicals, discriminating against private parties vis-à-vis Pemex and other state productive companies without justified causes, thereby reducing the number of competitors and unjustly restricting supply.
In accordance with various legal provisions and specifically the Constitutional Rights Protection Law (Ley de Amparo), permit holders or private parties whose rights are affected by the passing of such reform could file proceedings against it and analyze other procedures in accordance with international treaties that they could resort to in order to obtain a definitive suspension of the Act and protect their investments.

If you need an in-depth analysis of the impacts in connection with the Amendment to the Hydrocarbons Law, applicable to particular cases of the hydrocarbons industry, don’t hesitate to contact our experts.

*This article is authored by Citlali Pérez and it may reflect personal opinions independent from the law firm she works for. If you intend to apply any of the interpretations or provisions discussed in the article, we highly recommend that you formally consult Jáuregui y Del Valle, S.C. or any other qualified advisor.