Initiative to modify the Hydrocarbons Law

On March 26, 2021, Mexican President Andrés Manuel López Obrador sent to the Chamber of Deputies the "initiative to modify the Hydrocarbons Law," (the "Initiative").¹

The Initiative intends to modify relevant aspects of permits for the hydrocarbons sector in Mexico by amending several articles of the Hydrocarbons Law (Ley de Hidrocarburos, "LH") and establishing six transitory articles. Among the relevant aspects contained in the Initiative, the following aspects are emphasized:

1. In relation to the permits referred to in the LH, (i) it establishes that the Ministry of Energy ("SENER") and the Energy Regulatory Commission ("CRE"), depending on the authority that issued the corresponding permit, may determine the "suspension" of the permits, a different faculty from the occupation or intervention of the permits previously established in the LH, and (ii) the possibility to contract third parties from the private sector to carry out the management and control of occupied, intervened or suspended facilities is eliminated; therefore, only the State Productive Companies can be hired.

   In this regard, SENER and CRE could temporarily or definitively suspend the permits issued, in the event that an imminent danger to national security, energy security or national economy is foreseen, although the Initiative does not expressly refer to what should be understood by these concepts. Likewise, the Initiative establishes that if a permit is suspended, the authority that issued such permit, will be in charge of the administration and operation of the Permit Holder² in order to guarantee the interests of the users, consumers, and of third parties' rights, being able to use the personnel that the Permit Holder had been using or to hire a new operator.

2. It establishes that in the event of a request for the assignment of permits that are not solve by SENER and CRE within the 90 calendar days period that they have to decide on the request, it will be understood that the request has been denied. Note that the procedure in force considers the request as granted.
3. It establishes as an additional requirement for the granting of permits by CRE or SENER (including Petróleos Mexicanos (Pemex), other State Productive Companies and private parties), in addition to complying with the existing requirements, the interested party should demonstrate that they have the minimum capacity storage determined by SENER in accordance with the applicable legal provisions.³
4. It is added as a cause for revocation of a permit for Transportation, Storage, Distribution or Sale to the Public of Hydrocarbons, Petroleum Products or Petrochemicals, the commission of the crime of contraband of hydrocarbons, petroleum products and petrochemicals, which has been determined by a final resolution of a competent authority.
5. It is added that the CRE will sanction, in addition to the corresponding penalties, with the revocation of the respective permits, in the event of recurrence of the commission of infractions related to: (i) non-compliance with the provisions applicable to the quantity, quality and measurement of Hydrocarbons and Petroleum Products; and (ii) modification of the technical conditions of systems, pipelines, facilities or equipment without the corresponding authorization.

Transitory Provisions Applicable to Current Permits

In particular, the transitory articles of the Initiative establish, among others, that the competent authorities will proceed to: (i) the revocation of those permits that, as of the date of entry into force of the Initiative, do not comply with the minimum storage requirements determined by the SENER; (ii) the revocation of permits whose holders are found to have failed to comply with the "corresponding requirements" or to be or violation of the provisions of the LH; and (iii) the privation of legal effects (termination) of permits that have expired; that is, those permits whose rights were not exercised within the term indicated in the title of the permit or, in the absence thereof, for a term of 365 consecutive calendar days.

It worth mentioning that, unlike the recently published Reform to the Electricity Industry Law, the Federal Executive submitted the Initiative to the Chamber of Deputies without the modality of "preferential treatment," for which reason it does not have a specific term to be discussed and approved by the Mexico´s Federal Congress. If approved, it will be sent to the Federal Executive for its promulgation and publication in the Federal Official Gazette.

Individuals or entities whose rights would be affected by the Initiative could obtain legal advice for taking appropriate legal actions.

Click here to download the 'Initiative to modify the Hydrocarbons Law' PDF in Spanish.

_{1 Available at http://gaceta.diputados.gob.mx/PDF/64/2021/mar/20210326-I.pdf.
2 Pursuant to the LH, Permit Holder means: Petróleos Mexicanos (Pemex), any other State Productive Companies or parastatal entity, or any private party who holds a permit to carry out the activities set forth in the LH.
3 Please refer to our client alert, Amendment of Public Policies regarding the Minimum Storage of Oil Products}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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