Constitutional amendments enacted on December 20, 2013 laid the ground for unparalleled structural changes in Mexico's energy sector, with far reaching implications in the environmental arena. The creation of a new environmental and industrial safety authority specialized in the oil & gas industry is one of the many substantial changes resulting from the Mexican energy reform.
On August 11th, 2014 the Law on the National Agency for Industrial Safety and Environmental Protection for the Oil & Gas Industry (the "National Agency") was enacted with effect as of August 12th, 2014. Following we provide a brief summary of some of the most relevant aspects of this new law.
Structure
The National Agency, entity under the umbrella of the Ministry of Environment and Natural Resources ("SEMARNAT") -de-concentrated organism-, will have technical and management independence. The National Agency will be headed by an Executive Director who will be freely appointed and removed by the President of Mexico.
Carlos Régules, former sub-director for Operations and Execution of Strategies at PEMEX, has been appointed as the first Executive Director.
Powers
The National Agency has been entrusted with regulation, inspection and sanction powers in matters related to industrial and operational safety and environment for the Oil & Gas industry. For the purposes of this law, the Oil & Gas industry includes certain activities of the hydrocarbon, petroleum, natural gas and liquefied petroleum gas industry, as well as certain activities associated with petrochemical pipelines.
In matters related to industrial and operative safety, the National Agency is empowered to issue binding regulations for the adoption and compliance of technical standards, to prevent and contain hydrocarbon spills and leakages and for remediation actions, as the case may be.
Permitting
In connection with the protection of the environment, the National Agency will be in charge of the processing of applications and the granting of permits for the Oil & Gas industry in matters of environmental impact and risk, emissions into the atmosphere, hazardous waste and their handling plans, forestry use of land changes and release of genetically modified organisms applied in bioremediation actions of polluted sites.
Such permits are currently granted by SEMARNAT through some of its administrative units, such as the General Direction for Environmental Impact and Risk, the General Direction for Forestry and Soil Management and the General Direction for the Comprehensive Management of Hazardous Materials and Risky Activities, among others.
Upon the enactment of the National Agency's internal regulations, the National Agency will take control of the processing of such applications and the granting of such permits. Authorizations previously granted by SEMARNAT will continue to be in full force and effect pursuant to the terms and conditions under which they were granted.
Applications for permits pertaining to the Oil & Gas industry currently in process of evaluation before SEMARNAT will be transferred to the National Agency for their resolution; however their processing will be delayed for up to 25 business days as a result of the transfer of certain powers to the National Agency.
Authorizations related to the electric power industry will remain under the umbrella of the current administrative units of the SEMARNAT.
A noteworthy aspect of this new law is that the regulated parties will be able to evidence compliance with obligations set forth in licenses, permits, authorizations and registrations under the jurisdiction of the National Agency through external auditors' reports. To counterweight this administrative facility, external auditors may only provide their services to the same regulated party for a maximum 3-year term.
Obligations for Regulated Parties
Some of the key obligations to which regulated parties are bound on matters of industrial and operative safety are:
- Give notice to the National Agency of any risk that may jeopardize the industrial or operational safety or the environment, such as incidents, accidents, releases or spills.
- Implement a management system for the prevention, control and improvement of performance at their facilities. The regulated entities must have an area responsible for the implementation, evaluation and improvement of this system.
- Include tag-along obligations for their contractors. Regulated parties' contractors shall adhere or implement a management system in compliance with requirements to be issued by the National Agency, in those cases in which the activities under contract may result in risks to the public, the environment or facilities.
- File on an annual basis a compliance report of their obligations.
Transparency
Only certain public officers, as established in the internal regulations of the National Agency, will be able to hold meetings with regulated parties to discuss matters that those parties present to the evaluation or consideration of the agency. Those meetings will be recorded and filed. Access to information discussed in such meetings will be restricted, except for SEMARNAT, the head of the National Agency and the federal supervisory departments.
A record of each and all meetings will be kept. Such record will include information such as: identity of the attendees and matters discussed during such meeting. This information will be made public through the National Agency's website.
The development of the meetings shall observe the guidelines to be issued by the Executive Director of the agency.
Sanctions
The National Agency is empowered to impose fines which currently range from US$38,000 and up to US$38 million, approximately. The amounts of these fines may duplicate in the event of second-time offenses, making them the heaviest fines in the federal administrative arena.
The National Agency may also suspend the effects or revoke licenses, authorizations, permits and registrations, as well as penalize severe or continuous violations with warnings, suspension and even with the removal or disqualification of personnel providing services to the holders of hydrocarbons exploration and exploitation activities pursuant to the Hydrocarbons Law; the latter being a debatable matter.
What's next?
Upon the enactment of the secondary energy laws, the President announced that the Interior Regulations of the National Agency would be enacted and published in the Official Gazette of the Federation by November 2014.
Furthermore, upon the assignment of a budget by the House of Representatives for the National Agency and the enactment of its internal regulations, the National Agency will formally commence activities. It is worth noting that the law at issue is silent on the term in which it shall occur.
The Executive Director will issue an internal administrative act establish the guidelines for meetings among authorized officers from the National Agency and the representatives of the regulated parties.
Conclusions
For the avoidance of doubt and duplicities of powers with those of SEMARNAT, in our view, this law requires certain precisions to clearly establish the jurisdiction of the National Agency over certain matters, including the issuance of certain environmental permits.
It is expected that the matter will be cleared in the regulations to follow or by internal guidelines to be issued by SEMARNAT and the National Agency.
Originally published 21 August 2014
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
