• Implementing
    the Energy Reform in Mexico
  • Nicolás Borda and Evert Sánchez
    Partner and Associate at Haynes & Boone
  • The eagerly awaited implementation of the 2013 Reform is finally near completion as the last two years following such Reform were defined by the issuance of the secondary laws and regulations. Once the pieces are in place and after learning from the experiences of the projects awarded last year, 2016 is poised to be a critical year for the arrival of new investment as the uncertainty of the implementation of the Reform has been reducing

    During the first steps of the implementation of the Reform, the regulators have shown empathy with the arrival of new competitors into the newly opened markets by adopting the best international practices in order to grant them legal certainty when building their strategies. As an example of this was the increasing participation of bidders during the second and third bids of Round 1 launched by the National Hydrocarbons Commission (CNH). The experience gained during these bids will be invaluable for the participants of the ongoing bid comprising the award of license contracts for the exploration and production of hydrocarbons in deep water fields in the Gulf of Mexico.

    The interest shown by the investors towards the liberalization of the oil & gas industry has pulled the Ministry of Energy to lift the restriction to import gasoline and diesel imposed to the private parties moving forward this opening as of April 1, 2016. The early liberalization to import such fuels by the private sector encourages the arrival of investment focused in the construction of midstream and downstream infrastructure such as maritime terminals, storage facilities and pipelines.
    Mexico’s shift towards a cleaner and efficient power generation policy will be led by the substitution of the existing power plants supplied by fuel oil into plants fueled with natural gas, a vast resource in Mexico’s geography. However, until Mexico is able to tap into its own resources, it has resulted very attractive for the midstream participants during the recent public bids called by the Federal Electricity Commission (CFE) to import and transport natural gas into Northern Mexico such as Los Ramones pipeline. Natural gas projects will continue to be an attractive area of opportunity in Mexico as envisioned in the National Infrastructure Program 2014-2018 with the construction of more than 5,000 km of pipelines and investments of over US$8 billion.

  • Projects
    As part of the strategy to transit to clean energy sources, renewable projects will be reinforced with the construction of transmission grids that will be developed together by the CFE and private parties using the new contracting schemes brought by the Reform, such as the Public-Private Partnership (PPP) and joint ventures. One of these projects is the Tehuantepec Istmo-Central Mexico transmission grid that will be announced the second trimester of 2016 and it will comprise a 372 mile transmission line interconnected to the National Electric System. Other projects to follow are the Cozumel 15 mile subsea transmission line and the Puebla 65 mile transmission line. The scheme to be used will most likely be under a Build, Own, Operate and Transfer (BOOT). Likewise, renewable energy projects will be fostered by the issuance of Clean Energy Certificates (CEL) that may be traded in the wholesale market or in the long term auctions called by National Power Control Center (CENACE). The ongoing first auction caused a surprising response by having received 468 offers from 103 bidders to satisfy the demand of CFE comprising 500 MW of power; 6.3 million MWh of electricity and 6.3 million CEL.
    Last but not least, accurate and prompt legal advice will play a major role for investors during the implementation of the Reform by understanding the rationale of the different provisions and concepts of the Reform and public policy matters to interpret the new regulatory framework, creation of new opportunities and first mover advantages, as well as the interaction of the new regulatory agencies and nontechnical risks such as liabilities, tax and environmental issues. Haynes and Boone has been a very active law firm in Mexico representing national and international clients during the development and financing of energy projects. Its Mexico City office has more than 20 years of experience in the Mexican market.