Mexican Energy Reform Decree for the Transitory Regime Approved by Congress

Transcription

1 The Mexican Congress has approved a decree containing amendments and additions to the Constitution in matters of energy. Hydrocarbons in the subsoil will continue to be the property of the Nation. The exploration and extraction of hydrocarbons; the planning and control of the electricity system and the transmission and distribution of electricity will be handled by the State. Pemex and the CFE will become public production companies. Private parties may take part in: - The exploration and extraction of hydrocarbons, under four different types of contract: - Refining, gas processing, transportation, storage and distribution under permit: - The generation of electricity under permit; and - The transmission and distribution of electric energy, under contract. Mexican Energy Reform Decree for the Transitory Regime Approved by Congress Full communiqué December 16, 2013 Final document approved by the Mexican Congress, and the Local Congresses of each state.

2 Summary The Mexican Congress has approved the Decree amending and adding provisions to the Mexican Constitution in matters of energy. The debates emphasized the need to modernize the energy sector and strengthen the Department of Energy (Sener) and regulatory bodies, i.e., the National Hydrocarbons Commission (NHC) and the Energy Regulatory Commission (ERC) as well as future State Production Entities : Petróleos Mexicanos (Pemex) and Comisión Federal de Electricidad (CFE). It also provides the means for private parties to participate in the sector. In a term of 120 days as from the date on which the decree goes into effect, the respective secondary laws should be issued based on the provisions of the transitory regime specified in the decree.

3 Final document approved by the Mexican Congress, and the Local Congresses of each state. Constitutional amendments and additions Article 25 of the Mexican Constitution Article 28 of the Mexican Constitution The Federal Government will continue to own and control State organisms and State Production Entities. The planning and control of the National Electric System; the public transmission and distribution of electricity and the exploration and extraction of oil and other hydrocarbons will be in the hands of the State in the terms of article 27 of the Constitution. As concerns those operations, the law will regulate the administration, organization, functioning, contracting processes, personnel remunerations and other legal matters in order to guarantee their effectiveness, efficiency, honesty, productivity, transparency and accountability, on the basis of best practices. Social and private sector companies will be supported by criteria of social equity, productivity and sustainability- Development (including industrial development) must be managed so as to guarantee sustainability. Article 27 of the Mexican Constitution None of the exclusive operations conducted by the State in the following strategic areas will qualify as monopolies: ( ); The planning and control of the national electric system and the electric energy public transmission and distribution service and the exploration and extraction of oil and other hydrocarbons; ( ); ( ), In the terms of the sixth and seventh paragraphs of article 27 of the Constitution The State will have access to a public trust by the name of Fondo Mexicano del Petroleo for Stabilization and Development, with the central bank acting as trustee, which will receive, administer and distribute income arising from assignments and contracts, with the exception of taxes. The Executive Power will have coordinated regulatory bodies for matters of energy known as the National Hydrocarbon Commission (NHC) and the Energy Regulating Commission (ERC). No concessions will be issued for radioactive minerals. The planning and control of the national electric system and the public transmission and distribution system will be in the hands of the State and no concessions will be granted. Private parties may take part in all other operations of the electricity industry. Solid, liquid and gas forms of oil and hydrocarbons found in the subsoil remain the untransferable property of the State, and no concessions will be granted in those areas. In the terms of the Regulatory Law, the State will conduct all exploration and extraction operations via assignment to State Production Entities or via contracts with those entities or with private parties. State bodies may contract private parties in order to achieve the purpose of said assignments or contracts. State ownership of hydrocarbons found in the subsoil must be specified in all assignments and contracts.

4 Transitory regime 1. Term The decree will go into effect on the day following publication. 2. Labor rights The rights of civil servants will be respected. 3. State Production Entities The laws will establish the means and terms for Pemex and the CFE to become State Production Entities. During that transition period, Pemex and subsidiaries may receive assignments and enter into contracts. On the other hand, the CFE may sign contracts for electricity transmission and distribution. 4. Types of contract The legal framework for establishing and regulating the following will be amended in 120 days: The different types of contracts for conducting exploration and extraction operations on behalf of the State, including those of productive companies and private parties. Following are the types of contract that must be used, among others: i) Service contracts; ii) shared profit contracts; iii) shared production contracts or iv) licensing contracts. In each of those cases, the State will determine the contractual model with a view to maximizing revenue. The types of payments made by the State to its Production Entities or to private parties will include the following: i) In cash, for service contracts, ii) in the form of a percentage of the profit for the respective shared-profit contracts; iii) in the form of a percentage of production, for sharedproduction contracts; iv) in cash for the transfer of hydrocarbons extracted in the case of licensing contracts; or v) any combination of the foregoing. Prices and taxes payable by Production Entities or private parties and payments to the State for product extracted and transferred to Production Entities or private parties. 5. Accounting reports Production companies with assignments or contracts, Pemex and Subsidiaries during the transition, and private parties holding exploration and extraction contracts with the State or production companies may report expected benefits for accounting and financial purposes, provided the respective contracts specify that all natural resources located in the subsoil are the property of the State. 6. Preferential bidding processes The Department of Energy (SENER), with the technical assistance of the National Hydrocarbon Commission (NHC), will award assignments to Pemex. Within 90 days following the date on which the constitutional amendments go into effect, Pemex will request Sener the assignment of areas for exploration and production fields, on the basis of their respective capacities. In a period of 180 days, the SENER, with the assistance of the NHC, will specify the surface area, depth and term of the assignment in question, based on the following criteria: For exploration assignments, in cases where Pemex has made discoveries and/or investments, based on the investment capacity and a plan, Pemex will continue its operations over a period of three years, renewable for a maximum of two years, and if successful, continue with production. Unless the plan is complied with, the area in question will revert to the State. For extraction assignments, Pemex will keep fields producing up to the date on which the Energy Reform goes into effect. Pemex must submit a plan describing the work to be done and investments to be made, and demonstrating efficient and competitive production. In the case of assignments involving two fields within the same area, the depth to which extraction is to be conducted separately will be determined. When assignments affect Pemex investments, the SENER will recognize them and the State may determine the respective price. No assignments may be transferred without SENER approval. Pemex may reclassify its assignments as contracts with the authorization of the Sener. If Pemex decides to contract a private party, the NHC will handle the bidding process, the SENER will establish the technical and contractual guidelines and the Department of Finance will determine applicable taxes. In those cases, the authorities involved in State/private party contracts will handle administration and control. 7. Production chains The participation of domestic and local production chains will be encouraged; the minimum percentages of national content will be established in the law, subject to commercial treaties and agreements, and the national industry will be promoted in those areas. 2 PwC México Diciembre 2013

5 Final document approved by the Mexican Congress, and the Local Congresses of each state. 8. Social interest and public order Exploration and extraction and the public electric energy transmission and distribution service are considered to pertain to the domain of social and public order. Those areas will enjoy preference over any other area involving the use of the soil or the subsoil; likewise, when technically feasible, coexistence with other operations will be facilitated. The laws will regulate prices payable for occupation or impairment of property, or, when applicable, any indemnity payable. Mining concessions will not include the right to oil exploration and extraction. Concession holders must allow those operations to be conducted. The Law will provide mechanisms to facilitate the coexistence of exploration and extraction, as well as the transmission and distribution of electricity and other activities conducted by the State and private parties. 9. Procedures for awarding contracts and assignments Standards designed to guarantee that contracts are awarded by means of transparent mechanisms will be modified within a period of 120 days, and the basis for the respective rules and procedures must be made known and be made publicly available for consultation. The law will also provide: That contracts include a transparency clause accessible by the public; For external audits for the supervision of recovery, costs incurred and accounting, y For the disclosure of prices paid, taxes and payments made. 10. Competence of decentralized government agencies and organisms Without prejudice to other faculties, within a period of 120 days, the law will establish the competency of: The SENER to: Conduct and coordinate energy policy. Award assignments and select areas, with the assistance of the NHC. Design contracts and technical guidelines for bidding processes. Grant permits for gas refining and processing, and Promote open access to and efficient operation of electricity and enforce compliance. The NHC to: Advise the Sener in technical matters; Gather geological and operating information; Authorize surface reconnaissance and exploration services; Invite bids and award and sign exploration and extraction contracts; Provide technical management of assignments and contracts; Supervise extraction plans, and Regulate the exploration and extraction of hydrocarbons. The Energy Regulating Commission (ERC) to: Regulate and issue permits for the storage, transportation and pipeline distribution of oil, natural gas, commercial natural gas, petroleum products, ethane, propane, butane and naphtha. Regulate and issue permits for pipeline transportation of petrochemicals; Regulate third-party access to pipelines and the storage of hydrocarbons and derivatives; Regulate and issue permits for the generation of electricity; Regulate an authorized rates for the transmission and distribution of electricity; and Regulate first-hand sales. The Department of Finance to: Establish economic conditions for bids and contracts and the respective tax matters. The Sener; NHC and ERC will be empowered to issue sanctions in cases contemplated by the law. The Sener and regulating bodies must be courted native in the terms contemplated in the law. 11. The public electric energy transmission and distribution service The different types of contracts to be used for private parties to engage in the financing, installation, maintenance, management, operation and extension of infrastructure for rendering the public electric energy transmission and distribution service on behalf of the State will be set down in legislation by Congress. Reforma Energética 3

6 12. Organization and functions of coordinated regulatory bodies The legal framework will be adjusted within a period of 120 days so that the NHC and the ERC: Can become legally independent coordinated regulatory bodies with technical and management autonomy. Will have access to the government dues and fees for their services specified in the law, for the issuance and handling of permits, approvals, assignments and contracts, as well as for the services of the National Hydrocarbon Information Center (NHIC). Can finance their budgets as follows: At the close of the budgeted period, remaining funds will be placed in trust, and the trustee must apply those funds to expenses pertaining to compliance with the functions of the NHC in subsequent periods. The NHC must grant priority to the NHIC, which will put together seismic studies and rock samples taken from hydrocarbon exploration and extraction works. Trusts will be subject to the evaluation and control of State tax surveillance entities and to the provisions of the Transparency Law. Trusts may not accumulate resources exceeding three times the budget of the commission in question. The Federal Budget will contemplate resources for personal services, materials, supplies and general services. 13. NHC and ERC Commissioners Commissionaires currently holding office will conclude their assigned periods. Within a period of 120 days, legislation must provide that NHC and ERC Commissioners may only be removed in cases of serious irregularities and may be redesignated for a second term to cover a new staggered period. The appointment of ERC and NHC commissioners will be submitted by the Mexican President to the Senate, which will make appointments based on a two-thirds majority vote. If the Senate makes no appointment in a period of 30 days, the position will be occupied by the person designated by the Mexican President. If the Senate rejects all names on the list, the President will submit a new list. If that second list is rejected, the President will designate the Commissioner. 14. Mexican Oil Fund For Stabilization and Development The Fund will be a public trust, with Banco de Mexico acting as trustee. It will be set up in 2014 and go into effect in 2015, as follows: All revenue will be funneled into that trust, with the exception of taxes, duties and fees corresponding to the Mexican State arising from assignments and contracts. It will manage and make the payments established in said assignments and contracts, as well as the transfers contemplated in the law Transfers will be made to the funds for the stabilization of oil revenue and the stabilization of federal entity revenue, up to the maximum limit. The difference will be used for long-term savings. Resources will be transferred from the hydrocarbon extraction fund to the research, energy sustainability and oil surveillance funds. Furthermore, resources equivalent to 4.7% of the GNP for the preceding period will be transferred to the Federal Treasury considering the nine rights currently in effect. When the balance of public savings investments is 3% or more of the GNP for the preceding period, resources may be assigned: i) to the pension system; ii) to science, technology, innovation and renewable energy projects; iii) to oil and infrastructure investment projects; and iv) to scholarships for training, improved connectivity and regional industrial development. Resources may not be applied to current expenditures. In the event of a significant reduction in public revenue combined with a drop in the GNP, resources may be transferred from the Fund to the Federal Treasury, with the approval of a two thirds majority of the House of Representatives. Revenue and the application of resources must be subject to the Transparency Law and made known quarterly via electronic media. 15. Oil Fund Technical Committee The Technical Committee of the Trust will be composed of the Ministers of Finance and Energy, the Governor of the Banco de Mexico and four independent parties, appointed by the Executive with Senate approval. Likewise, that Committee will determine investment policy and the use of resources and will recommend the amounts to be assigned as specified in the law to the House of Representatives. 4 PwC México Diciembre 2013

7 Final document approved by the Mexican Congress, and the Local Congresses of each state. 16. Decrees for the creation of National Natural Gas Control and Electric Energy Control Centers Within a period of 12 months as from the date on which the law regulating Article 27 of the Mexican Constitution pertaining to the Oil Sector goes into effect, the following must be issued: The decree creating the decentralized body known as the National Natural Gas Control Center, which is to operate the national pipeline and storage system. Pemex and subsidiaries must transfer the resources acquired for the Center to acquire and manage the respective infrastructure, as well as all contracts signed. The decree for the creation of the decentralized body known as the National Energy Control Center, which is to control the operations of the national electricity system, the operations of the wholesale electricity market, open and nondiscriminatory access, and other faculties. The CFE must transfer the resources required for compliance with those faculties. 17. Environmental protection In a term of 365 days, the legal framework required to promote the protection and care of the environment will be drawn up, aimed at: i) the efficient use of energy, ii) a reduction in greenhouse emissions, iii) the efficient use of natural resources; iv) low levels of residues and emissions and v) a reduced carbon footprint. The parties involved in the electricity industry will be committed to the use of clean energy in the reduction of pollutants. 18. The transition to clean fuels Within a term of 365 days, the SENER must include in the National Program for the Sustainable Use of Energy a transition strategy for promoting the use of clean technologies and fuels. In that same term, Congress will issue a law regulating the reconnaissance, exploration and exploitation of geothermal resources for the generation of electric energy and other applications. 19. The National Industrial Security and Environmental Protection Agency Within a term of 90 days, the Executive will create the National Industrial Security and Environmental Protection Agency, a decentralized body of the Department of the Environment and Natural Resources. In exchange for its services, that agency will receive tax and government fee income established in the law, mainly for the regulation and supervision of: facilities, the operations of the hydrocarbon sector, the dismantling and abandonment of facilities and comprehensive control of residues. 20. The purpose, organization and functioning of State Production Entities Within a term of 120 days, Congress will regulate all State Production Entities, and establish at least: The creation of economic value and increased revenues within an atmosphere of fairness and social and environmental responsibility and accountability. Budget autonomy subject to proper balancing and a ceiling on personal services, submitted by the Department of Finance and approved by Congress. Remunerations differing from those specified in article 127 of the Mexican Constitution. Corporate organization, administration and structure in line with international best practices, so as to ensure technical and management autonomy. Government bodies headed by Directors appointed and removed by the President or by the Board of Directors. That board will be comprised of five federal government representatives, including the Secretary of Energy and five independent advisors. Coordination with the Executive to prevent an increase in financing costs for the remainder of the Public Sector or a reduction in their sources of financing. A special regime for contracting, acquisitions, leasing, services, public works, public debt, administrative responsibilities and other factors required to ensure competitiveness. The new regime will be fully applied when management committees take office and surveillance, transparency and accountability mechanisms are put into place.. The current professional advisers will remain in place for the duration of the period for which they were appointed or until the agency becomes a public production entity and a new management committee is appointed. Those advisers may be reappointed for an additional period. 21. Sanctions The laws must warn, identify and severely punish all signatories, contractors, permit holders, civil servants and other public and private individuals and entities, whether Mexican or foreign, engaging in acts or omissions for the purpose of influencing decision-makers at the production companies in order to secure a personal economic benefit. Reforma Energética 5

8 Contacts Guillermo Pineda Lead Partner for the Energy Sector (55) Irene Hernández Lead Partner for CP&I and Energy Tax and Legal Services (55) Francisco Ibáñez Lead Partner for the CP&I Sector (55) Mario Alberto Rocha Senior Manager for Legal Services (55) Jorge Pedroza Manager - Energy Sector jorge.pedroza@mx.pwc.com (55) Javier Zenteno Founding Partner - Zenteno-Lira Mora Abogados y Asociados javierzenteno@zlmabogados.com (55) Humberto Lira Mora Founding Partner - Zenteno-Lira Mora Abogados y Asociados liramora@zlmabogados.com (55) Horacio Montoya Key Partner - Zenteno-Lira Mora Abogados y Asociados horaciomontoya@zlmabogados.com (55) Andrés Martín Escobar Associate - Zenteno-Lira Mora Abogados y Asociados andresmartin@zlmabogados.com (55) This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors PricewaterhouseCoopers,S.C. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details. PwC Mexico helps organisations and individuals create the value they re looking for. We re a member of the PwC network of firms in 158 countries with close to 180,000 people. We re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at MPC: _BR_boletin_RefENERGY