On October 31st, 2014, the Federation's Official Diary (Official Federation's Diary) published several regulations and regulatory instruments that will contribute to the implementation of the different laws in energy matters, issued and modified on August 11, 2014 (the "Secondary Legislation") as a result of the Decree by which were amended and improved articles 25, 27 and 28 of the Political Constitution of the Mexican United States, in energy matters, dated December 13, 2013 (the "Energy Reform").

1. Background

On December 20, 2013 the Republic's Senate approved, both general and particular, the "Project for a decree to amend and improve articles 25, 27 and 28 of the Political Constitution of the Mexican United States in energy matters", with 95 votes in favor and 28 against.

Such decree, apart from amending the mentioned constitutional articles, established 21 transitory articles that outlined the directives that would reflect on the Secondary Legislation that would implement the Energy Reform, dealing with the most relevant subjects in it, detailing the key points that should be contained in the Secondary Legislation, as well as the different terms to perform specific actions related to the reform process.

After the proclamation of the Energy Reform, dated April 30, 2014 the Federal Executive sent the Republic's Senate the corresponding initiatives of the Secondary Legislation, which formed a package of 21 laws, grouped into 9 blocks, of which 8 are new laws and the remaining 13 are laws that were modified.

Once published such initiatives, the legislative discussion started in extraordinary sessions at the Senate, and 4 rulings were formulated, which contained the laws proposed. The rulings were discussed and approved by the Republic's Senate and sent to the Chamber of Representatives, where the legislative process continued. Once both chambers approved the rulings, an extraordinary period was opened for the comprehensive approval of the Energy Reform that started on July 28, 2014. The Energy Reform was finally approved on its totality and proclaimed by the Federal Executive on August 11, 2014.

2. Issued rulings

Using the regulatory faculty, the Federal Executive issued the following rulings (the "Regulations"):

  • Regulations for the Hydrocarbons Law
  • Regulations of the activities referred to by the Third Title for the Hydrocarbons Law
  • Regulations for the Income on Hydrocarbons Law
  • Regulations of the Electric Industry Law
  • Regulations of the Geothermal Energy Law
  • Regulations of the Petróleos Mexicanos Law
  • Regulations of the Law for the Federal Electricity Commission
  • Internal Regulations of the Energy Ministry
  • Internal Regulations of the National Security and Environmental Protection Agency of the Hydrocarbons Sector

The following rulings were also published by which diverse existing regulative bodies got amended and that are relevant for the development of the energy sector:

  • Decree by which diverse dispositions of the Regulations of the Public-Private Associations Law are amended, improved and abrogated.
  • Decree by which diverse dispositions of the Regulations of the Federal Law for Treasury Responsibility and Budget are amended, improved and abrogated
  • Decree by which diverse dispositions of the Internal Regulations of the Treasury and Public Credit Ministry are amended, improved and abrogated
  • Decree by which diverse dispositions of the Regulations of the Mining Law are amended, improved and abrogated
  • Decree by which diverse dispositions of the Regulations of the Foreign Investment Law and of the National Registry of Foreign Investments are amended, improved and abrogated
  • Decree by which diverse dispositions of the Internal Regulations of the Economy Ministry are amended, improved and abrogated
  • Decree by which diverse dispositions of the Internal Regulations of the Agricultural, Territorial and Urban Development Ministry are amended, improved and abrogated
  • Decree by which diverse dispositions of the Regulations of the General Law for a Sustainable Forest Development are amended, improved and abrogated
  • Decree by which diverse dispositions of the Regulations of the General Law for Ecological Balance and Environmental Protection in Matters of Evaluation of the Environmental Impact are amended, improved and abrogated
  • Decree by which diverse dispositions of the Regulations of the General Law for Ecological Balance and Environmental Protection in Matters of Prevention and Control of Pollution in the Atmosphere are amended, improved and abrogated
  • Decree by which diverse dispositions of the Regulations of the General Law for Prevention and Comprehensive Administration of Residues are amended, improved and abrogated
  • Decree by which are amended, improved and abrogated diverse dispositions of the Regulations of the General Law for Ecological Balance and Environmental Protection in Matters of Ecological Ordainment
  • Decree by which diverse dispositions of the Regulations of the General Law for Ecological Balance and Environmental Protection in Matters of Registration of Emissions and Transference of Contaminants are amended, improved and abrogated
  • Decree by which diverse dispositions of the Internal Regulations of the Environment and Natural Resources Ministry are amended, improved and abrogated
  • Decree by which diverse dispositions of the Regulations of the General Law for Ecological Balance and Environmental Protection in Matters of Self-regulation and Environmental Audits are amended, improved and abrogated

Likewise, to implement the dispositions contained in the Secondary Legislation, "Guidelines that establish the criteria for granting the Certificates of Clean Energies and the requisites for their acquisition" were issued, as well as the "Decree by which it is amended the diverse to create the Instituto Mexicano del Petróleo (Mexican Oil Institute) as an Independent Body, published on August 26, 1965".

3. Relevant Points

With the issuance of the Regulations the idea is to get the proper implementation at a legal level of the dispositions contained in the Secondary Legislation, to develop the activities within the energy industry.

Hydrocarbons

With the effect of regulating the hydrocarbons industry, diverse dispositions were issued, which seek to implement the legal dispositions for the Hydrocarbons Law, the Income Law on Hydrocarbons and diverse instruments previously issued, as well as to perform the activities of the so called "Round Cero" and "Round One". Between the most important aspects are the following:

REGULATIONS FOR THE HYDROCARBONS LAW

  • The Regulations for the Hydrocarbons Law (the "Hydrocarbons Regulations") regulates the First, Second and Fourth Titles for the Hydrocarbons Law, being applicable the Federal Law of the Administrative Procedure in a temporary manner. In the Hydrocarbons Regulations the concepts of Previous Consultation, Social Impact Evaluation and Hydrocarbons Industry amongst others are defined.
  • The Regulations establish, with respect to the designations that the Energy Ministry (SENER) will be authorized to grant, modify, revoke and/or authorize the cession or withdrawal of designations to perform activities of exploration and extraction to Productive companies of the State.
  • In regards to the granting of designations, the Hydrocarbons Regulations defines the exceptions alleged where the Federal Executive, represented by the SENER, can grant a designation over areas where there are no valid contracts to develop activities for exploration and extraction. Such designations should be motivated based on the most appropriate mechanism for the interest of the State and the technical, financial and execution capacity to extract hydrocarbons in an efficient and competitive way for the corresponding designee. Such designation should have previous authorization from the National Hydrocarbons Commission (CNH), through a technical ruling that includes the analysis on the performance of any of the exception supposals foreseen in the Hydrocarbons Regulations and, in its case, the adjustment to the proposal for the designation area sent by the SENER. In relations to the minimum percentage for national content, the SENER should include it in the corresponding designation title, with the opinion of the Economy Ministry, observing that such percentage does not generate unduly advantages that can affect the competitive position of the designees or contractors.
  • The Hydrocarbons Regulations foresees the specific guidelines to perform the modification, cession, withdrawal or revocation of the designations, the cases of nature or force majeure and all other established in the designation title will be considered justified causes not to initiate or suspend the activities foreseen for activities of exploration and/or extraction of the designation areas.
  • The Hydrocarbons Regulations establishes that the CNH will have to, during the month of June of the first year of every five, propose the SENER the five-year period plan, which should contain the planning of the areas to bid on during the five-year period and the general characteristics of such areas. The SENER, during the third trimester of every year, will evaluate and make the corresponding additions or modifications to the five-year plan. At most on September 30 every year, the SENER should submit before the Ministry of Treasury and Public Credit (SHCP) the information on the areas that will be bid on the following year. Additionally, the SENER will be able to consider the proposals for areas over which there is interest, as long as they have been submitted at the latest during the second trimester of the year in question.
  • In regards with the migration of designations to contracts for exploration and extraction, the Hydrocarbons Regulations establishes the guidelines to perform the procedure, which will start with a request that should be submitted before the SENER and should include: (i) the identification of the designation to migrate; (ii) the justification of the convenience of such migration; (iii) the price scenarios used; (iv) the geological characteristics of the area; (v) the quality, the content of sulfur and API1 grades of the hydrocarbons; (vi) the description of the existing infrastructure inside and around the designation area; and (vii) in its case, the statement of the interest to hold an alliance or association with corporations, amongst other elements.
  • The SENER will resolve on the precedence of the referred request for migration, in conformance with the procedure indicated in the Hydrocarbons Regulations and, in case the migration proceeds, it will send the SHCP (i) the complete migration request; (ii) the migration precedence resolution; (iii) the proposal for the corresponding contract model for the area in question; and (iv) the support information determined. Once the contract model, the SENER should determine the technical terms and conditions and request the SHCP to establish the economical conditions relative to the tax terms, in conformance with the Income Law on Hydrocarbons and its regulations. The productive company of the State can accept or reject the corresponding terms and conditions; in case of rejection, the designation will be kept in its original terms, and in case of acceptance, the SENER will send the CNH all the information necessary for signing the corresponding contract for exploration and extraction.
  • The Hydrocarbons Regulations resolves on the assumptions when a productive company of the State is interested in holding an alliance or association with a company at a moment after a contract for the exploration and extraction coming from a migration has been formalized, for which, the selection of the corporation that will be part of such alliance or association will be subject to the applicable dispositions of the bidding process of the contracts for the exploration and extraction of the Hydrocarbons Regulations, as well as the dispositions contained in the Hydrocarbons Law.
  • The bidding process of the contracts for the exploration and extraction referred to in the previous paragraph will initiate through a summon, notified to the SHCP by the SENER, for what, before the SENER can send the final documents to the CNH, the following will be done:

(i) The SENER will send the SHCP the proposal for contract model for the corresponding Contractual Area2 and the SHCP and the CNH will issue their opinion over such proposal for contract model.

(ii) The SENER will determine, once approved the contract model, the terms and conditions and will request the SHCP to establish the economical conditions relative to the tax terms applicable.

(iii) The Economy Ministry will issue its opinion regarding the minimum national content percentage.

(iv) The SENER will make the technical guidelines to be followed in the bidding process.

(v) The SENER will request from the Federal Commission for Economic Competency its opinion on the pre-qualification criteria and the allocation mechanism of the contracts for exploration and extraction.

  • The Hydrocarbons Regulations also establishes the requirements for the bidding bases for the contract allocation for activities of exploration and extraction that the CNH should issue and in which the allocation of one or several contracts will be foreseeable, in one or several contractual areas, the possibility of participating in the bid by one or several contractual areas and any other mechanism or rule that is considered appropriate for the better performance and implementation of the bidding processes.
  • In those cases that a productive company of the State has requested the alliance or association in the assumptions established in the Hydrocarbons Regulations, the SENER will determine the contract model and terms and the SHCP will issue its opinion over the proposals of the processes for association or alliance and of the joint operation agreement.
  • The administrative withdrawal of the contracts for activities of exploration and extraction should be approved by the CNH, as well as the acts of nature and force majeure and all other established by the corresponding contract and that will be considered as justified causes not to initiate or suspend the activities foreseen in the respective Contractual Area.
  • Regarding the faculty of the CNH to, acting on behalf of the Mexican Oil Fund for the Oil for Stabilization and Development, should hire Petróleos Mexicanos (Pemex), any other productive company of the State or a corporation, to the effect that, in exchange for a counter-benefit, offers the Nation the marketing services of the hydrocarbons that the State obtains from the contracts for the exploration and extraction, it will be done through public bid, in conformance with the Law for Acquisitions, Leasing and Services of the Public Sector and its regulations.
  • The Hydrocarbons Regulations establishes that the requisites that the request submitted by the holders of a mining concession should contain when interested in obtaining the direct allocation of a contract for the exploration and extraction of natural gas associated to its mine, as well as the procedure regarding which the SENER will resolve such request for direct allocation and the applicable dispositions in case such allocation proceeds. And in regards with the direct allocation of a contract for the exploration and extraction of natural gas associated to a coalmine, the guidelines to be followed are also established for the SENER and the SHCP in case such allocation proceeds.
  • For the case that there are coexisting designations and contracts for activities of exploration and extraction with mining concessions, the Hydrocarbons Regulations establishes the guidelines and the terms for the negotiations between the contractors and/or designees and the corresponding concessionaires. In case of reaching an agreement, the pertinent notice should be submitted before the CNH.
  • The Hydrocarbons Regulations establishes the obligation by the SENER, the Economy Ministry, the CNH and the Energy Regulating Commission (CRE) of having a comprehensive information system on the measurement of hydrocarbons, oil products and petrochemicals.
  • The Hydrocarbons Regulations establishes the content requisites for the social impact study in charge of the SENER, necessary for any designation or publication of summon for the bid for a contract for the exploration and extraction. All the designees or contractors, as well as those interested in obtaining a permit or authorization to develop projects in the hydrocarbons industry should submit the social impact evaluation; they will not be subject to submit the social impact evaluation (i) the designees and contractors that request authorizations to perform activities inside the Designation Area3 or the Contractual Area, nor (ii) those interested in obtaining a permit to perform the marketing activities for hydrocarbons, oil products and petrochemicals, as long as they do not perform works or development of infrastructure.
  • The Hydrocarbons Regulations establishes that the previous consultation in charge of the SENER will be performed in coordination with the Ministry of the Interior, the National Commission for the Development of the Indigenous Peoples and the National Agency for Industrial Safety for Hydrocarbons and Environmental Protection of the Hydrocarbons Sector. In the cases developed by the productive companies of the State, these will perform the procedures of previous consultation, in conformance with the applicable legislation and the previous consultation to indigenous communities and peoples will be done through its representative institutions and through the appropriate procedures.
  • The minimum general phases that the previous consultation will contain are established, and will include: (i) consultation plan; (ii) previous agreements; (iii) informative; (iv) deliberative; (v) consultive; and (vi) agreement follow-up. The guiding principles of good faith, freedom, cultural pertinence, transparence, accommodation and reasonableness should be observed in the procedures of previous consultation, to reach agreements and obtain free and informed consent of the community in question.
  • The Advisory Board, in terms of the Hydrocarbons Regulations, it will be a collegiate body in charge of supporting the fostering of local productive chains relative to the hydrocarbons industry and will be integrated by (i) a representative of the Economy Ministry (who will preside it); (ii) a representative of the SENER; (iii) a representative of the CNH and (iv) a representative of the CRE. The Advisory Board will session with the presence of the majority of its members in ordinary sessions, at least once every four months and in extraordinary sessions at any time, at judgment of the president of the Advisory Board.
  • The Hydrocarbons Law establishes that the group of activities for exploration and extraction of hydrocarbons that are performed through designations and contracts of exploration and extraction in national territory should reach, in average, at least thirty five percent of national content and the designees and contractors should comply with, individually and progressively, with a minimum percentage of national content, for which the SENER will be in charge, in collaboration with the Economy Ministry, of determining such minimum percentage of national content. In case that a designee or contractor does not comply with the percentage of national content, the SENER will have to notify the CNH and it will impose the corresponding sanctions, in conformance with the applicable legislation.
  • The Hydrocarbons Regulations establishes the procedure to which the corresponding administrative authorities should be subject to for the imposition of fines.

The main transitory dispositions established in the Hydrocarbons Regulations are the following:

  • The methodologies, guidelines and general administrative dispositions in the matters referred to in the Hydrocarbons Regulations should be issued at the latest within one hundred and eight working days after the Hydrocarbons Regulations come into effect.
  • The contract models and methodologies for (i) the terms that the National Center for Natural Gas Control (CENAGAS) will be subject to comply with its obligations and (ii) the rules for the administrators of the integrated systems, should be published by the CRE in a term of ninety working days from the date the Hydrocarbons Regulations go into effect.
  • The designations, contracts and judicial acts granted or held based on the Regulations of the Regulatory Law of Constitutional Article 27 in the Field of Oil will be valid in everything that is not opposed to the dispositions of the Hydrocarbons Regulations; also, the requests for contracts, permits and authorizations that are in process when the Hydrocarbons Regulations go into effect will be resolved in conformance with the dispositions valid at the moment of submitting the corresponding request.
  • The SENER will have to issue the first five-year old plan during the first semester of 2015.
  • The content requisites of the request that the parties should submit from the comprehensive contracts of exploration and production and of the financed public work contracts that want to opt for the migration of the designation of a contract for activities of exploration and extraction, without the need to exhaust the bidding procedure are indicated; such request will be resulted by the SENER, in conformance with the established procedure.
  • The SENER will issue the methodologies, parameters and guidelines that work as reference to determine the percentage of the income corresponding to the designee or contractor in the projects that reach the commercial extraction of hydrocarbons in regards to the counter-benefit for the use, enjoyment or affectation of the lands, goods or rights for the activities of exploration and extraction of hydrocarbons, at most on the last working day of May 2015.
  • The SENER will issue the guidelines that will regulate the cases and conditions for participation, as well as the mechanisms for the designation of social witnesses in the negotiations between designees and contractors or owners or proprietors of the corresponding land, good or right, within the ninety natural days when the Hydrocarbons Regulations go into effect.
  • The SENER will publish the tabulators regarding the average values of the land and its accessories for its use, occupation or acquisition within the sixty natural days after the Hydrocarbons Regulations go into effect.
  • The Ministry of Agricultural, Territorial and Urban Development will publish the guidelines regarding the mediation of the acquisition forms, use, enjoyment or affectation of the lands, goods and the corresponding counter-benefit, within the one hundred and eighty natural days after the Hydrocarbons Regulations go into effect.
  • The designees and contractors will be granted a term of one hundred and eighty working days to adequate their infrastructure, so they have the equipment that allow them the proper measurement of hydrocarbons.

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