Research and analysis

Mexico: draft secondary legislation on energy reform

Published 21 May 2014

0.1 Summary

President Peña Nieto presents secondary legislation to Congress to implement last year’s historic Energy Reform. A strong signal that his administration is serious about transforming the sector and opening up to private investment. Well received by the markets. Analysis of structures, content and next steps, including as they affect British interests.

0.2 Detail

President Enrique Peña Nieto formally presented his administration’s proposal for the secondary laws on energy reform on 30 April. While last December’s reform removed the constitutional barriers to the opening of the sector, these laws are the framework for the actual liberalisation of the market.

To demonstrate the Government’s joined-up backing for implementation, Peña Nieto was joined at the launch by his Energy and Treasury Ministers. The package includes 9 initiatives which will modify 13 existing laws and create 8 new ones. Highlights include:

• Upstream oil and gas (exploration, production, refining and pipelines) will be open to private investment. Much of downstream activity will also be open, although petrol retail operations will be liberalised more gradually. Also, national oil company PEMEX’s tax burden will be cut from 79% to 65% in the hopes of increasing profit margins by 3 to 4 times their current value;

• Strengthening the energy regulators CNH (National Hydrocarbons Commission) and CRE (Energy Regulating Commission) as well as creating a new HSE agency for the oil and gas sector. CNH will be charged with running licensing rounds for oil and gas exploration and production;

• National content in terms of human resources and products and services will be set at 25% to be met gradually over the course of a license;

• Electricity generation and commercialisation will also open to private investment, with a particular focus on renewables; mainly geothermal energy. The State will continue to own and operate the national grid;

• The creation of a sovereign wealth fund (Mexican Petroleum Fund for Stabilisation and Development) to be the central repository for all oil and gas revenues. The Fund will provide revenue payments to the Treasury for use in the national budget of up to 4.7% of GDP. Additional income from the hydrocarbons industry will then be put into long-term savings accounts. After administrative caveats, money from this Fund will contribute towards a universal pension system; science and innovation in renewables; investment in oil projects; regional industrial development; and scholarships/education requirements.

While business and political reactions have been positive on the level of detail in the proposed legislation (over 500 pages), public reaction has been more muted in comparison to the intense debate that surrounded December’s constitutional change.

0.3 Comment

Although the original mid-April deadline for passing secondary legislation was missed, these proposals reaffirm Peña Nieto’s determination to press ahead with his landmark energy reforms

At first glance, the draft legislation paves the way for UK commercial opportunities not only in the oil and gas sectors but also in renewables, education and capacity-building opportunities, as well as in promoting London as the natural home for Mexico’s sovereign wealth fund.

0.4 Disclaimer

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