Research and analysis

Mexico: first stage approval of energy reform

Published 25 July 2014

0.1 Detail

After 62 hours of debate over five days, President Peña Nieto’s administration has driven through secondary legislation, securing a significant leap forward in liberalising the energy sector. Government expects investments of up to US$200 billion by 2020 with more expected beyond that. The Senate has approved 4 blocks of secondary laws establishing the process for oil, gas and electricity liberalisation. This will see the end to the PEMEX (national oil company) and CFE (national electricity utility company) state monopolies, transforming them into “state-owned productive companies”. Peña Nieto’s Partido de la Revolucion Institucional (PRI), in coalition with PAN (conservative) and PVEM (green party), secured the necessary majority with around ¾ of votes.

Important changes include:

• Formal liberalisation of oil and gas exploration and production activities, through a competitive licensing scheme to be administered by the newly strengthened National Hydrocarbons Commission (CNH), who will act as an independent upstream market regulator.

• Scaled liberalisation for petrol retail from January 2016 and private imports of gas and hydrocarbons permitted from January 2017. Permits will be issued by the Ministry of Energy (SENER) and the Energy Regulatory Commission (CRE).

• National content for oil and gas licences set at 35% (up from proposed 25%), to support strengthening the national supply chain and building the capacity of Mexican labour to internationally certified standards.

• Clear rules on land-use, including profit sharing schemes between 0.5% and 2% to be paid in “rents” to owners of properties where onshore hydrocarbons resources are to be explored and produced.

• A restructuring of current electricity subsidies, aimed at reducing costs for domestic users and imposing fines for electricity theft. Formal liberalisation of electricity generation and transmission, though the granting of licenses, mainly to companies that will boost the renewable and clean energy mix that should, in the long term, lower household utilities bills.

• Limitations on the current PEMEX and CFE unions, barring them from forcing new energy companies to sign collective job agreements with them.

The debate now moves on to the House of Deputies (Lower Chamber) where these bills will need to be ratified. Further debate is required by Deputies on outstanding secondary legislation dealing with the fiscal and economic aspects of energy reform including the Sovereign Wealth Fund and setting of tax and royalty schemes (which are the sole remit of the Chamber of Deputies). Debate is likely to be swift as the government will again use its coalition majority to push forward the agenda. David Penchyna, President of the Senate Energy Committee, has said he expects the President to sign the full suite of secondary laws by the beginning of August.

0.2 Comment

Peña Nieto defended the outcome stating that “this might not be a unanimous vote, but it is a solid majority, and thus, represents the will of the people”. The PAN declared it a triumph with the dismantling of state monopolies.

The law still has to be approved by the Lower Chamber, signed and published. Once completed, Peña Nieto’s government will have largely concluded the legislative process for their ambitious reform agenda. The potential opportunities for UK companies are significant and long-lasting. We will continue to promote the UK as partner of choice, making the most of our GREAT campaign and the 2015 Year of the UK in Mexico.

0.3 Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.