June 10, 2021

Mexico’s Deregulation of PEMEX as a Seller

By José María Lujambio and Iván Castañeda

A Decree was published in the Official Journal of the Federation (“DOF” for its acronym in Spanish) on May 19, 2021, amending the thirteenth transitory article of Mexico’s 2014 Hydrocarbons Law (the “Decree”) and granting the Energy Regulatory Commission (“CRE” for its acronym in Spanish) 30 days to abolish all general administrative regulations that had been issued to implement the “asymmetric” regulation of Petróleos Mexicanos and its subsidiaries and affiliates (“PEMEX” for its acronym in Spanish). CRE complied almost immediately on May 21, publishing Resolution A/015/2021in the DOF, which cancelled a total of 49 prior resolutions issued for such purpose.

The asymmetric regulation was based on the abovementioned transitory article, which granted authority to the CRE to establish general contractual terms and conditions, as well as maximum prices, in first-hand sales and marketing of hydrocarbons, refined oil products, and petrochemicals, performed by PEMEX. The purpose of the scheme was to limit PEMEX’s dominant power as a market agent until effective competitive conditions were achieved with new entrants in the Mexican market.

Regulations such as these are not new to Mexico. The CRE has had the authority to regulate first-hand sales of natural gas since 1995, as well as certain refined oil products since 2008. To fully implement the constitutional energy reform of 2013-14, the CRE issued new regulations. Such regulations have been cancelled and PEMEX remains a very powerful market agent, now deregulated.

Many would argue that Mexico’s Congress unreasonably assumed that sufficient diversity had been achieved in the market to consider it efficient and competitive. For example, at present, approximately 70% of gasoline consumed in Mexico is imported from the United States, while only 30% is produced by PEMEX. However, PEMEX performs 80% of imports, thereby satisfying up to 85% of Mexico’s domestic demand.

The Decree adds further concern to the private sector by further limiting access to a competitive hydrocarbons market in Mexico. Recently, the American Petroleum Institute (“API”) expressed its concern to the United States government in regard to the unfavorable treatment that several companies have received from Mexico’s current administration, alleging that the administration had taken measures to protect its own State-owned companies. The API’s allegations may constitute the basis for initiating protest processes set forth in international treaties to which Mexico is a party, such as the USMCA.

Recently, specialized antitrust federal courts in Mexico have granted some provisional suspensions against the Decree within certain amparo lawsuits. In general, Mexican courts have ruled that the Decree could have a devastating effect on market competitiveness. Companies other than PEMEX that hold permits for marketing hydrocarbons, refined oil products, and petrochemicals, as well as buyers of such products are most clearly affected.

CCN has actively followed the legislative process of the Decree, and of the prior amendments to the Hydrocarbons Law and the Electricity Industry Law. We are available to assist you in evaluating the impact of the Decree on your company, and if applicable, with the corresponding defense proceedings.