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Senate and Deputies Chamber approved the major constitutional change in years, putting an end to the prohibitions established in 1938 with the oil expropriation laws.
The approved Energy Reform The Energy Reform was approved by both the Senate (95 in favor and 28 against) and Deputies Chamber (353 in favor and 134 against). The approved document is a combination of the bill presented by President Enrique Peña Nieto and the one developed by Partido Accion Nacional (PAN). The reform modified articles 25, 27 and 28 of the Mexican Constitution, allowing private investments in the energy sector, but stating clearly that Mexican State remains as the solely owner of all natural resources. The constitutional introduced 4 types of contracts for exploration and exploitation of hydrocarbons: • Service provider contracts (payments in cash) • Profit- sharing (payments based on a percentage of the revenues) • Production-sharing (payments based on a percentage of production) • Licenses, in which companies pay royalties and taxes to the Mexican government for the right to explore and drill • A combination of all the four types is also allowed. Additionally, it gives private companies the ability to post expected benefits in their financial statements, as long as they specify in their contracts that all oil and gas they find in the ground belongs to Mexico. However, the constitution would continue to prohibit oil concessions, considered the most liberal kind of access by private oil companies. Energy Ministry will be able to grant permits for oil refinery and process of natural gas, once they’re extracted. Hydrocarbons could be sold by the entity that possess them, even within Mexican territory. Other important changes introduced by the Bill, are: 1) Pemex and the CFE will transform into state owned productive entities, by which their operations will be sustain by efficiency, honesty, productivity and transparency, based on private sector best practices; 2) the non-inclusion of the Union in Pemex’s Board, which will now be constituted by the Federal government and independent-expert members; 3) the creation of the Mexican Oil Fund, allowing present and future generations to receive benefits from oil production; 4) the creation of the National Center for Natural Gas control which will promote positive incentives for private investments in pipeline development; and 5) introduction of the National Agency for Industrial Security and Environment Protection as a regulator setting standards for all industry.
MEXICO PUBLIC AFFAIRS UPDATE
The approved Energy Reform Regarding Electricity, the reform states the following: • Mexican State will remain in control of the National Electric System, which includes public service. Contracts with private companies will be determined by secondary legislation • Generate, conduct, transform and supply electricity are no longer activities reserved to the Mexican State • Generation and commercialization of energy will be open to private companies, who will use state owned transmission and distribution infrastructure • The Electric Industry Law would be modified and after that, the President must create the National Center for Energy Control • Sustainability is introduced in article 25, to reinforce environment protection • Congress will create the new National Industrial Security and Environment Protection for Hydrocarbons Agency
Bloomberg’s review also emphasized the changes and stated that “Mexico’s Senate approved energy bill that supporters say will make the country the world’s fifthlargest oil producer in about a decade, spurring growth in Latin America’s second-biggest economy.”
The Partido de la Revolucion Democratica (PRD), as well as the Partido del Trabajo (PT) and MORENA, movement leaded by Andres Manuel Lopez Obrador –former presidential candidate, were the main opponents of any constitutional changes that would allow private investment in oil production, distribution and extraction. PRD leader Jesus Zambrano stated that the party will work so that the reform approved by the Senate, specifically issues related to private investment are declared unconstitutional via the recently approved political reform which introduces public consults regarding national relevant topics. “Our strategy will be to guarantee that National patrimony remains like that.” The opposition has called for a national movement to block the discussion of the approved reform in local Congresses,
International & expert voices on the Reform
The Energy Reform has been broadly commented in major international newspapers and specialized blogs. The New York Times pointed out that “Mexico's Senate on Wednesday approved the most dramatic oil reform in decades, moving the country closer to opening its beleaguered, state-run sector to private companies and investment.” While Financial Times published on December 8th that “A bill has been hammered out, designed to attract billions of dollars of private investment into an industry monopolized by the state for 75 years.” The Wall Street Jorunal’s article talked about how “Mexico's Senate passed an energy bill late Tuesday that may end a 75-year-old monopoly held by state-owned oil company.”
MEXICO PUBLIC AFFAIRS UPDATE
The reform would need to be approved by 16 state congresses, since the Constitution was amended. After that, secondary legislation –rules and regulations- will need to be drafted.
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