Mexico – Government Proposes Amendment to the Hydrocarbons Law

On March 26, 2021, the Mexican House of Representatives published in the Parliamentary Gazette an initiative to amend certain provisions of the Hydrocarbons Law, an amendment directly proposed by President Andrés Manuel López Obrador (the “Amendment”).

The Amendment will modify core aspects of the permits necessary to perform midstream and downstream activities in the hydrocarbons sector. The main goal, as explained by the president, is to prevent speculation in the oil market and combat the illegal trafficking of gasoline (huachicoleo).

In a nutshell, the Amendment includes provisions addressing the following:

• Midstream and downstream permit applicants must now demonstrate ex ante that they have storage capacity pursuant to the Public Policy on Minimum Storage of Petroleum Products.
• Contrary to the current Hydrocarbons Law, which establishes a deemed approval, if the authorities do not resolve a permit application within the relevant time period, the permit will be deemed to be denied.
• The Energy Regulatory Commission (Comisión Reguladora de Energía, “CRE”) and the Ministry of Energy (Secretaría de Energía, “SENER”) could suspend and revoke permits if (i) they determine that there is an imminent danger to national security, energy security or to the national economy or (ii) the relevant authority determines that there is a breach of the Hydrocarbons Law.
• If a permit is suspended, the governmental authority that issued the relevant permit will be in charge of the permit holder’s administration and operations to ensure continuity in the performance of regulated activities.  The authority may use the permit holder’s personnel or hire a new operator or do both. The permit holder may request the end of the permit suspension when the reasons for the suspension are corrected or cease to exist.

Considerations and Next Steps:

• The Amendment, in addition to changing the rules for granting permits under the Hydrocarbons Law, creates uncertainty for permit holders, given that the CRE and SENER are granted rights to suspend permits for reasons of national security, energy security or economic considerations—concepts that are broad and subject to a government decision.
• The process for enactment of the Amendment requires its discussion and approval by the special energy commission of the House of Representatives. This discussion is scheduled for March 31, 2021.  If approved, the bill will be sent for discussion to the Senate’s special energy commission and, if the bill is approved, a plenary session will instruct the bill’s publication.
• Unlike the LIE amendment, the Amendment is not a preferential initiative, and it is unclear how long it will take to be approved. However, it is likely that the procedure will be quick.
• Once the Amendment is published, it will enter into force the day after publication. This is relevant because the transitory articles of the Amendment establish that permits of permit holders that are not compliant with the new regulation shall be revoked upon enactment of the Amendment.

***

Francisco Mendez
fmendez@mayerbrown.com

Vera de Gyarfas
vdegyarfas@mayerbrown.com