Mexico - Amendment to Hydrocarbons Law Is Partially Suspended

Two district judges¹ have temporarily suspended certain provisions of the amendment to the Hydrocarbons Law published in the Federal Official Gazette (Diario Oficial de la Federación, “DOF”) on May 4, 2021 (the “Amendment”).

The suspensions are the result of the preliminary measures granted by judges in an amparo trial that will decide whether the new provisions are constitutional. The challenged Amendment contains the following key changes:

(a)  An addition to Article 51 now requires permit holders to prove that they have the required minimum hydrocarbons storage capacity required by the Ministry of Energy (SENER).

(b)  Since it was first enacted, the Hydrocarbons Law gave regulators the power to occupy the permit holders' facilities due to non-compliance with technical conditions of the permit, and authorities could contract with private companies to ensure the continuity of activities. A change to Article 57 (now suspended) only allows contracting with state-owned companies (i.e., Petróleos Mexicanos).

(c)  The new Article 59 Bis creates a procedure to suspend a permit in a case of imminent danger to Mexico’s energy security or the national economy, at the discretion of regulators.

(d)  Changes to Articles 53 and 56 change the framework for the granting and assignment of permits. The changes removed the positive silence (afirmativa ficta) that gave applicants automatic approval to perform the activity or assign a permit if the authority did not respond to the request.

Both judges concurred that the entry into force of the revised Article 57, which removed the option for regulators to contract with private parties upon the occupation of a permit holder´s facilities, must be suspended. They also suspended the fourth and sixth transitory articles, which established that existing permits that do not comply with the new requirements would be revoked.

In addition, Judge de la Peza Figueroa suspended Articles 51 and 59 Bis, regarding the new storage requirements for new permit requests and the suspensions of permits for energy security and national economic reasons.

Altogether, most of the provisions of the Amendment have been suspended. The rest of the provisions could be declared void in the final decision.

Summing up, as a result of the suspension (i) the revocation of permits will not necessarily imply that Pemex will take control of the operations; (ii) the new rules will not have retroactive effects, meaning that current permits that do not comply with the new requirements will not be revoked; and (iii) the new requirement of minimum storage of hydrocarbons for the permit holders is now suspended.

Specialized tribunals grant general effects to their decisions to avoid having the suspension of such provisions as preliminary measures within the amparo trials grant an undue advantage in the market to a specific economic agent. This is why the judges have ordered that their sentences have general effects, so both resolutions must be published in the DOF for publicity purposes.

It is important to note that this decision is provisional; it does not repeal the Amendment but only freezes its effects until the final judgement is published.

¹ The judges who have granted protection measures to suspend the effects of the application of the new law (at least until the merits resolution) are Juan Pablo Gómez Fierro and Rodrigo de la Peza López Figueroa from the First and Second District Courts, respectively, and both specialized in Administrative Matters, Competition, Broadcasting and Telecommunications.