Following our client alert published on March 30, 2021,1 the "decree by which several provisions of the Hydrocarbons Law are amended and added" (the "Reform") was published on May 4, 2021 and entered into effect on May 5, 2021.
As reported by White & Case, on March 26, 2020, Mexican President Andrés Manuel López Obrador sent to the Chamber of Deputies the "initiative to modify the Hydrocarbons Law." This initiative was the subject of a significant number of comments from private individuals and entities, and the Federal Economic Competition Commission issued a statement determining that “the process of competition and free competition in the value chain of hydrocarbons, petroleum products and petrochemicals would be negatively affected” in the event that the initiative was published in its current terms.2
In this regard, on May 4, 2021, Mexican President Andrés Manuel López Obrador published the Reform in the Federal Official Gazette ("DOF").3 Please note that the Reform published in the DOF has certain changes with respect to the initiative presented in the Chamber of Deputies, particularly with respect to the new ability to "suspend permits" and a seventh transitory article was added.
Among the most relevant issues of the Reform, the following are highlighted.
In relation to the permits referred to in the LH, (i) it establishes that the Ministry of Energy (“SENER”) and the Energy Regulatory Commission ("CRE"), depending on the authority that issued the corresponding permit, may determine the “suspension” of the permits, a different faculty from the occupation or intervention of the permits previously established in the Hydrocarbons Law (Ley de Hidrocarburos, "LH"), and (ii) it eliminates the possibility of contracting third parties from the private sector to carry out the management and control of occupied, intervened or suspended; therefore, only the State Productive Companies can be hired.
In this regard, SENER and CRE could suspend the issued permits in the event they foresee an imminent danger to national security, energy security or national economy, although the Reform does not expressly define these concepts. The suspension would require prior notice to the Permit Holder,4 which would be granted a term of 15 calendar days to present its manifestation and provide evidence; once this term elapses, SENER and/or CRE would have the same term to decide whether or not to suspend the permit.
Thus, the Reform establishes that if a permit is suspended, the authority that issued such permit will be in charge of the administration and operation of the Permit Holder in order to guarantee the interests of the users and consumers, and of third parties’ rights, being able to use the personnel that the Permit Holder had been using or to hire a new operator.
- It establishes that in the event of a request for the assignment of permits that are not resolved by SENER and CRE within the 90 calendar days they have to decide on the request, it will be understood that the request has been denied. Note that the procedure in force considers the request as granted.
- It establishes an additional requirement for the granting of permits by CRE or SENER (including Petróleos Mexicanos (Pemex), other State Productive Companies and private parties). In addition to complying with the existing requirements, the interested party should demonstrate that they have the minimum capacity storage determined by SENER in accordance with the applicable legal provisions.5
- It adds as a cause for revocation of a permit for Transportation, Storage, Distribution or Sale to the Public of Hydrocarbons, Petroleum Products or Petrochemicals, the commission of the crime of contraband of hydrocarbons, petroleum products and petrochemicals, as determined by a final resolution of a competent authority.
- It adds that the CRE will sanction, in addition to the corresponding penalties, with the revocation of the respective permits, in the event of recurrence of the commission of infractions related to: (i) non-compliance with the provisions applicable to the quantity, quality and measurement of Hydrocarbons and Petroleum Products; and (ii) modification of the technical conditions of systems, pipelines, facilities or equipment without the corresponding authorization.
Transitory Provisions Applicable to Current Permits
In particular, the transitory articles of the Reform establish, among others, that the competent authorities will proceed to: (i) the revocation of those permits that, as of the date of entry into force of the Reform, do not comply with the minimum storage requirements determined by the SENER; (ii) the revocation of permits whose holders are found to have failed to comply with the "corresponding requirements" or to be in violation of the provisions of the LH; (iii) the privation of legal effects (termination) of permits that have expired; that is, those permits whose rights were not exercised within the term indicated in the title of the permit or, in the absence thereof, for a term of 365 consecutive calendar days; and (iv) that the CRE and the Tax Administration Service (Servicio de Administracion Tributaria, "SAT"), within the scope of their competencies, shall verify compliance with the applicable provisions regarding the measurement of hydrocarbons, petroleum products and petrochemicals.
Individuals or entities whose rights would be affected by the Reform could obtain legal advice for taking appropriate legal actions.
Click here to download 'Amendment to the Hydrocarbons Law' PDF in Spanish.
1 To consult the client alert, please refer to the following link: https://www.whitecase.com/publications/alert/initiative-modify-hydrocarbons-law.
2 The statement of COFECE may be found at: https://www.cofece.mx/algunos-terminos-de-la-reforma-a-ley-de-hidrocarburos-afectarian-la-competencia/.
3 Available at: http://www.dof.gob.mx/nota_detalle.php?codigo=5617453&fecha=04/05/2021.
4 Pursuant to the LH, “Permit Holder” means: Petróleos Mexicanos (Pemex), any other State Productive Companies or parastatal entity, or any private party who holds a permit to carry out the activities set forth in the LH.
5 Please refer to our client alert, available at: https://www.whitecase.com/publications/alert/amendment-public-policies-regarding-minimum-storage-oil-products.
Gustavo Neyra López (White & Case, Legal Intern, Mexico City) contributed to the development of this publication.
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