Following the approval by the Federal Congress and the publication by the Executive Branch of a series of material amendments to the Electric Industry Law (which are now being challenged in the courts), on March 26, 2021, President López Obrador submitted to the House of Representatives the Bill (the “Bill”) which proposed several amendments to the Hydrocarbons Law (the “LH”).

For context, the LH is the main piece of legislation for the oil & gas sector, stemming from the 2013 Constitutional Energy Reform which liberalized the sector to private investment.  The LH regulates all sectors of the hydrocarbons industry (i.e. upstream, midstream, and downstream).

The Bill does not propose changes to the current regime related to exploration and production activities; however, it introduces important changes to other activities in the hydrocarbons industry.

In this regard, it is important to note that the activities that are subject to permit by SENER or the CRE under the LH are the following (all of which would be affected by the proposed amendments):

crude oil treatment and refining, natural gas processing, and the export and import of hydrocarbons and refined products;

The main amendments proposed under the Bill are the following:

I.   Storage as a Requirement for Permits

The Bill proposes to introduce a new section in Article 51 of the LH (which provides the main principles that shall be observed in the granting of permits), providing that permit applicants shall evidence that they hold sufficient storage capacity to perform their activities, as determined by the Ministry of Energy (“SENER”).

In this sense, it is important to note that at this time and pursuant to the Minimum Storage of Refined Products implemented by SENER, marketing and distribution permit holders were already subject to compulsory stock obligations of refined products; however, with the change proposed under the Bill, applicants shall demonstrate ex ante that they hold with sufficient storage capacity as a requirements to obtain the applicable permit and, potentially, these compulsory stock obligations would be applicable to all permit holders.

II.   Deemed Rejection in Assignments of Permits

Article 53 of the LH currently provides that SENER or the Energy Regulatory Commission (the “CRE”), as applicable, shall resolve applications for the assignment of permits within 90 calendar days; otherwise, the application shall be deemed approved (afirmativa ficta).

However, the Bill proposes that, if an application is not resolved within the abovementioned period, it shall be deemed rejected (negativa ficta).

III.   New Causes for Revocation

The Bill proposes the introduction of new grounds for the revocation of permits under Article 56 of the LH, which include: (i) evidence that a permit holder performed a regulated activity with products either illegally purchased or illegally imported to the country; and (ii) repeatedly incurring in the administrative violations referred in Article 86 of the LH (which currently only entail a fine).

IV.   Suspension of Permits

The Bill proposes changes to Article 57 and a new Article 59 Bis of the LH, which would imply that both the CRE and SENER shall have the authority to temporarily occupy facilities, intervene the operations of permit holders and/or suspend already issued permits “in order to guarantee the interests of the Nation”. Pursuant to the amendments proposed in the Bill, the CRE and SENER would become authorized to suspend any permit in case an imminent danger to national or energy security, or the national economy, is foreseen. These suspensions may be temporary or definitive, and the authority may engage third parties (specifically, State productive companies) to continue to perform the activities undertaken in the facilities that have been occupied, intervened or suspended. We note that the Bill provides also that, in these cases, third party rights shall remain safeguarded.

V. Saving Provisions

The Saving Provisions proposed under the Bill include that:  (i) the relevant authorities shall revoke those permits that fail to meet the minimum storage requirements established by SENER as of the date of publication of the amendments to the LH; and (ii) once the amendments become effective, the permits of any permit holders who do not comply with the requirements established under the LH or are in violation of the provisions of the LH, shall be revoked.

Likewise, the Bill establishes that any permit holders which may be affected, may request the payment of the relevant affectations in accordance with the laws applicable to such matter. However, it is unclear whether this should be understood as a reference the laws regulating expropriations and/or international treaties related to investment protection.

It is also important to note that, unlike the bill which amended the Electricity Industry Law, the Bill is not being proposed as a preferential bill, which means that no specific terms (30 days for each Chamber) for Congress’ discussion and voting would apply in this case. However, pursuant to the legislative majority held by the political party of President López Obrador in both Chambers of Congress, it is expected that the discussion and approval of the Bill shall be performed on a fast-track basis, as in the case of the amendments to the Electricity Industry Law.

This document is for informative purposes only and it does not constitute legal advice. For further information, contact us.