In December 2013, Mexico’s Congress approved an energy reform. The legislation called for the opening of both state oil company Pemex and the Federal Electricity Commission (CFE) to private investment. For the first time in over 75 years, private companies will be able to participate in Mexico’s energy sector.
While the initial legislation described the types of contracts and frameworks called for by the reform, the secondary legislation included the details of how the reform would be implemented. The secondary legislation was presented by the Secretary of Energy Pedro Joaquín Coldwell and Finance Secretary Luis Videgaray at the end of the congressional session on April 30. Congress is likely to call for extraordinary sessions to pass the legislation before September, when the next congressional session begins.
Highlights of the package:
- There are 21 laws in the package, including modifications to 13 existing laws and the establishment of 8 new laws.
- The legislation maintains that hydrocarbons are property of the Mexican state in the subsoil.
- There will be free and open competition and tenders among state enterprises and private companies in exploration and production, transformation, logistics, and electricity. The one
Pemex CEO Emilio Lozoya will join the panel on energy reform at our Mexico City conference on May 12. Check the agenda and tune into the webcast live that day.
exception is the sale of gasoline.
- Local content rules mandate that 25 percent of content must be domestically sourced in new projects. This requirement would come gradually into effect by 2025. Pemex must also have an at least 20 percent stake in cross-border projects.
- There will be a petroleum fund set up from oil proceeds that must reach 3 percent of GDP before the government may make withdrawals.
- All contracts with private companies will be adjudicated through public tender. All bidding rounds will be made public and broadcast through the internet. Moreover, the laws focus on strengthening the transparency of public institutions, oversight, environmental protections, and the promotion of clean energy.
- The laws call for the Secretariat of Finance to no longer administer the budget and finances for Pemex and CFE. Furthermore, the Pemex union will no longer make management decisions nor will it participate in Pemex’s administration.
- Pemex will reduce its fiscal burden. It will now pay a tax of 65 percent as opposed to previously paying upwards of 80 percent. The tax will be paid over its profits as opposed to a set percentage of its assets. Pemex must decide its annual budget with a debt limit.
AS/COA’s Energy Action Group is monitoring developments closely and will provide additional information as it becomes available.