Mexico: The President submitted a Bill to amend and incorporate several provisions of the Hydrocarbons Law

In brief

On March 26, the Mexican President submitted before the Congress a Bill to amend and incorporate several provisions of the Hydrocarbons Law ("Amendment").


Contents

  1. A new additional requirement is imposed on the applicant to obtain a permit, as it should demonstrate that it meets adequate storage requirements. Although this Bill does not refer specifically to the Minimum Petroleum Storage Policy, we interpret that this Bill aims to have all permit applicants to comply with this policy.
  2. In the event that the period of 90 days for the issuance of the permits has elapsed without receiving an express resolution from the competent authority, it should be understood that the application has been denied. Currently, the Hydrocarbons Law in force presumes that the respective application has been approved after 90 days of its application (afirmativa ficta).
  3. If there is a recurrence of non-compliance with the provisions relating to the quantity, quality, measurement of hydrocarbons and petroleum products, as well as any modification made to the technical conditions of systems, pipelines, facilities or equipment without the corresponding authorization, the permit will be revoked.
  4. The Ministry of Energy (SENER) and the Energy Regulatory Commission (CRE) are now entitled to temporarily suspend the permits issued, if there is an imminent danger to national security, energy security or to the national economy (without a clear definition of the said concepts). Likewise, it is proposed that the permit may be resumed when the permit holder shows that the grounds originating the suspension have been resolved.
  5. In relation to the above, in the event that a permit is temporarily suspended, a Productive State Company (e.g., Pemex) and not a third party, will be in charge of the facilities administration and operation to maintain the continuity of the activities of the permit. 
  6. Moreover, in its transitory regime, it establishes that:

a. The competent authority shall proceed to revoke those permits which on the date of entry into force of the Amendment, fail to comply with the storage requirement.

b. The competent authority will proceed with the expiration and revocation of those permits which holders do not comply with the applicable provisions related to use of the permit.

Recommended actions

We consider that if the initiative of the Amendment is approved in the terms set forth (which is very likely to occur as happened in the legislative procedure of the Power Industry Law), there will be a violation of several constitutional principles such as free competition, the non-retroactivity of the laws, the economic control of the State, the disproportionate sanctions, the freedom of trade, as well as the human rights of private property, legality and judicial certainty.

We have identified several legal actions that could challenge the Amendment. As an overview, these actions include amparo claims; antitrust and competition claims; and international arbitration claims against Mexico under the international investment protection agreements executed by Mexico. Under these agreements, foreign investors may initiate international proceedings against the government if Mexico violates commitments undertaken regarding the treatment and protection of foreign investments.

Regarding the amparo action, it has to be filed within 30 business days following its effective date or within the following 15 business days from the first act of application of the provisions included in the Amendment. Through the amparo action, the company may request an injunction so that the Amendment is not applied until the amparo action is finally solved. Such injunction may be effective for general purposes, in order to avoid an exclusive benefit to those companies filing an amparo.

In depth

We consider that from a strategic standpoint, when exploring and analyzing the different avenues available to challenge the Amendment and protect your investment, you should be advised with an integral assessment to make sure all incurred actions are properly aligned to access subsequent remedies (i.e., fork in the road) and assessing collateral risks that could alter the business relationship existing between those (parties) affected and (a) SENER, (b) PEMEX, (c) CRE, and (d) third parties, because of possible actions derived from these instruments, etc.


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