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Mexico: Mexican Government Proposes a Bill to Amend the Constitution Impacting the Energy Sector

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In brief

On 30 September 2021, the President presented to the House of Representatives (Cámara de Diputados) a Bill seeking to amend articles 25, 27 and 28 of the Constitution of the United Mexican States (the “Constitution”), in energy matters (“Bill” or “Proposed Amendments”).On 30 September 2021, the President presented to the House of Representatives (Cámara de Diputados) a Bill seeking to amend articles 25, 27 and 28 of the Constitution of the United Mexican States (the “Constitution”), in energy matters (“Bill” or “Proposed Amendments”).

Background

The Bill to amend the Constitution proposes the following: (i) substantial changes in both public policies, and the regulation of the electricity and hydrocarbon industries; (ii) nationalizing the right to the exploration, use, and exploitation of lithium, and, (iii) establishing that no future concessions will be granted.

If this Bill is approved, it would establish a major structural change, and a dramatic shift in the country´s vision for the electricity sector, which is currently operating under open market rules, allowing for private investment from different participants. However, until the full legislative process takes place, it is difficult to know if the proposed constitutional amendments will be approved under these terms, and whether they will be binding. The Constitution would have to be reformed, and the Proposed Amendments would have to be enacted, including the Secondary legislation which regulates the Constitutional provisions contained in articles 25, 27 and 28.

Key Takeaways

The legislative process for the Proposed Amendments to be enacted, and issued in the Official Gazette of the Federation, consists of its review, analysis, and respective approval by a qualified majority (two-thirds) of the House of Representatives, and later, by the same proportion of the Senate. It would require 334 votes from the 500 deputies that make up the House, and 85 of the 128 that make up the Senate. In addition, an approval process must be carried out by a simple majority, in each of the local legislatures of the 31 States of the Mexican Republic, and Mexico City.

The Bill to Amend the Constitution in Energy Matters, proposes the following principle provisions:

Five Key Provisions

  1. The State, preserves the right, and shall be responsible for energy security and sufficiency, and in charge of the continuous supply of electricity to the Mexican population. (It should be noted, that this could be interpreted as elevating the right to receive electricity to a basic human right and therefore, subject to the protection of individual rights/guarantees. If that were the case, in the event of a denial, or lack thereof, of electricity supply, a legal recourse could be sought)
  2. The State is in charge of all activities related to the energy transition, utilizing all the energy sources available to the State in a sustainable manner. However, it is known that the State intends to comply with the generation and supply of electricity utilizing non-renewable resources (i.e., fossil fuel, carbon based). Furthermore, the Bill proposes to eliminate the Clean Energy Certificates (“CELs”), all which seem contradictory to this provision.
  3. The status of State productive enterprises will be eliminated, emphasizing that these enterprises will now return to a State owned enterprise (returning to a government instrumentality). This change implies, in principle, that they will no longer be independent, autonomous, commercially driven companies. They will once again be agencies dependent on the centralized federal government, and subordinate to the governmental agency heads, i.e., the Ministry of Energy (SENER).
  4. SENER will assume control over the formerly coordinated regulators of the sector: the Energy Regulatory Commission (CRE) and the National Hydrocarbons Commission (CNH). CRE and CNH will be eliminated in their capacity as coordinated regulatory bodies in energy matters, integrating their structure and powers under SENER.
  5. Nationalize the strategic areas of: (i) lithium and other strategic and necessary minerals, and (ii) the industries required for the energy transition.

Within 180 days from the entry into force of the Bill, the Congress will make the necessary modifications. This includes, but is not limited to, secondary and subsequent legislation that would be affected by the Proposed Constitutional Amendments (e.g. the Electricity Industry Law, the Energy Regulatory Commission Law, and Law of Coordinated Regulatory Bodies, among others).

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Author

Benjamín Torres-Barrón leads Baker McKenzie's Energy, Mining & Infrastructure Practice Group in Mexico. Mr. Torres-Barrón is listed as a recommended lawyer by Who’s Who Legal for oil, gas, and project finance in Mexico and was named by Chambers Latin America as one of the country's leading lawyers in the energy and natural resources practice. For several years, he has been acknowledged by the magazine Petróleo & Energía as one of the 100 leaders in Mexico's energy industry. He is a professor of the Master’s Degree in Energy and Sustainability Law at Universidad Autonoma de Nuevo Leon and of the Diploma Degree in Energy at Universidad Autonoma de Ciudad Juarez.

Author

Marco Nieto Vázquez is a partner in Baker McKenzie's Energy, Mining & Infrastructure Industry Group in Mexico City. He has over 17 years of international consulting experience in the private sector, the Mexican public sector, and international energy-related organizations. He has also served as an external consultant to the International Atomic Energy Agency, leading professional missions for some Central and South American governments on issues of energy modelling and planning and was part of the Energy and Infrastructure team in PwC in Mexico.

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Daniel is a lawyer with over 18 years of experience in the corporate, energy, project finance and infrastructure fields. He has advised numerous clients, including multinational public and private corporations, local corporate groups, private equity funds and financial entities, real estate developers and investors, manufacturers and retailers.

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Natalie Flores is currently the regional knowledge attorney for North America and Latin America in the Global Antitrust & Competition Group in the Firm's Mexico City Office. She has over ten years of experience as an attorney, and manages and executes regional and global legal content projects, training and client initiatives for the Competition Group within the context of the Firm's knowledge strategy across the region. Natalie oversees all regional knowledge for the antitrust and competition group for the Americas, including develop thought leadership, client training, and publications, amongst other antitrust initiatives for the region, and advises a diverse range of industry clients in multijurisdictional competition matters. She has experience in competition litigation, specifically class action. She is an active member of the Firm's various industry groups, with a focus in the Energy, Mining & Infrastructure group of Baker McKenzie. Natalie is on the Board for Mujeres en Energías Renovables (Women in Renewable Energy) en México (MERM), an association dedicated to promoting the development of women in renewable energy, and concentrates on advocating for renewables and the empowerment of women in the sector.

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