Keywords: constitutional energy reform, private investment, energy sector, Mexico,
On August 12, 2013, Mexican President Enrique Peña Nieto of the current ruling party, the Partido Revolucionario Institucional (PRI), delivered a highly anticipated constitutional energy reform proposal to the Mexican Senate, which, if passed, will constitute the most significant overhaul of the Mexican energy sector since 1938. The proposal is expected to be considered by the Mexican Congress in September.
Peña Nieto's announcement comes on the heels of a separate reform proposal by the country's center-right party, Partido Acción Nacional (PAN), which was announced on July 31, 2013. For a detailed description and analysis of the PAN's proposal, see our Legal Update, "Sweeping Mexico Energy Reform Proposal."1
Overview of Peña Nieto's Reform Proposal
Peña Nieto is proposing broad constitutional changes that would open the Mexican petroleum industry to private participation and investment, including by international oil companies (IOCs), to explore for, and produce, oil and gas. The proposed constitutional changes would also open the midstream and downstream petroleum sectors and the electric power generation sector to private participation and investment. The key points of Peña Nieto's proposal are as follows:
Vests in the Congress broad authority to designate those that may carry out oil and gas exploration and production activities in the country and to specify by what terms and under what conditions. The proposal includes no requirement that the national oil company, Petróleos Mexicanos (Pemex), maintain its monopoly on exploration and production. Private companies may be granted exploration and production rights directly by the State or under some form of association with Pemex; Allows private companies to own oil and gas production and to fully share in the economic risks and benefits of the business; Allows for direct private investment and participation in the midstream and downstream sectors, including refining, petrochemical production, distribution and the retail marketing of petroleum and refined products; and Reduces the domination by Comisión Federal de Electricidad (CFE), the national electricity utility, of the country's electricity generation, and opens the door to a competitive wholesale power market. Currently, Mexico has one of the most restrictive legal frameworks for energy development in the world. The Mexican Constitution and the Regulatory Law, a statute governing the petroleum industry, severely restrict the role that private companies can play in the Mexican petroleum industry. Indeed, Pemex currently has a monopoly over every step of the petroleum value chain, from production and refining to distribution and marketing.
The government also controls the electric power industry sector through CFE, which dominates the country's electric power generation and maintains a monopoly over its transmission and distribution.
Peña Nieto's proposal calls for specific constitutional changes but leaves many of the details of the broader overhaul to secondary legislation. While the proposed constitutional changes offer little guidance on how the industry will operate after the reforms, the proposal's introductory "statement of intent" (exposición de motivos) provides key insights into Peña Nieto's overall vision for liberalizing the Mexican energy industry. The statement of intent characterizes the proposals as a modern-day return to the spirit of the reforms...