Background

  1. The Hydrocarbons Law was published in the Federal Official Gazette of on August 11, 2014 and last amended on November 6, 2020. This Law and its Regulations have allowed the opening and transformation of the hydrocarbons market in our country.

  2. As any positive law and in accordance with current circumstances to attain sustainable, productive and efficient development, several of its provisions could be amended to achieve a balance between the rights and obligations arising under hydrocarbon exploration, extraction and marketing authorizations and permits and the State’s duty to continue safeguarding the direct ownership over such resources, to comply with both the country’s legal framework and the International Treaties to which Mexico is a party.

  3. As a result of the Federal Government’s tendency, its National Development Plan 2019-2024, in its "Policy and Government Core Concept" to radically modify contrariwise 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.

  4. The House’s Energy Commission issued its opinion and on its plenary session held last April 14, passed the bill generally, making certain reservations that from a legal point of view, do not cure the violation of private parties’ rights, if passed that way. Now that the bill has also been approved by the Senate it will be resent to the House for analysis and, as applicable, approval.

Justification of the Amendment:

  1. 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.

  2. 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 it may subsequently authorize 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, 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.

  3. 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 any event of occupation or intervention and now adding the 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.

  4. 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.

  5. 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.

  6. 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 just causes, thereby reducing the number of competitors and unjustly restricting supply.

  7. 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.