Useful pages on the regulator website
- Homepage: https://www.gob.mx/sener
Norma Rocio Nahle García: Minister of Energy
Miguel Ángel Maciel Torres: Deputy Minister of Hydrocarbons
Sergio Saldaña Zorilla: Entrusted of the Deputy Ministry of Power
Energy industry: background and current context
Pursuant to the constitutional Energy Reform, published on 20 December 2013, articles 25, 27 and 28 of the Mexican Constitution were amended to modernise Mexico’s energy industry, fully opening the whole value chain (in the hydrocarbon and power industries) to private investment, and ending the state’s monopoly. This Energy Reform modified the principles, key players, roles, scope and, in general terms, the understanding of the Mexican energy industry.
The main package of the Energy Reform’s implementing legislation, which contains several new laws (including the Power Industry Law (Ley de la Industria Eléctrica), the Energy Transition Law (Ley de Transición Energética) and the Hydrocarbons Law (Ley de Hidrocarburos), among others), and several amendments to existing legislation, was published on 11 August 2014. The Energy Reform energised the industry and attracted both investment and competition.
However, since the new president was elected in July 2018, the new administration has expressed a different vision of the energy industry based on a reinforcement of the government-owned entities, and has developed a new policy, contrary to the principles and the structure contemplated in the Constitution and the regulations. This change of philosophy has generated confusion and has taken the whole sector into a re-evaluation stage. Many investments are being questioned and government decisions are being challenged in courts. We expect this turmoil will soon transition into a more productive process, in which the government and the private sector can work together to develop an industry that is vital to the Mexican economy.
The 2013 Energy Reform also contains several transitory articles that describe in more detail the basis for the implementing legislation and regulation of the power and hydrocarbons sectors. Among those, transitory article tenth of the Energy Reform describes the legal power and authority of the Ministry of Energy (Secretaría de Energía (SENER)).
Prior to the Energy Reform, the generation, conduction, transformation, distribution and supply of electric power were considered a public service and, as such, were overseen by the state. The Federal Electricity Commission (Comisión Federal de Electricidad (CFE)) had exclusive control over the generation, transmission, distribution and commercialisation/supply of power. As an exception to the public service, private entities could generate power under schemes of independent production (sale of power to CFE), self-supply, cogeneration, small production and for import and export.
Following the opening of the sector to private participation pursuant to the Energy Reform, the state reserves exclusivity over the transmission and distribution of power (considered strategic areas). Otherwise, the law allows the participation of private investment in all other activities in the power sector, including the generation, supply, and trade of power, as well as the creation of a nationwide wholesale electricity market.
Oil and gas sector
Prior to the Energy Reform, private investment was not allowed in the Mexican hydrocarbons sector (except for the transportation by pipeline, storage and distribution of natural gas, which has been allowed since 1995). Mexican Petroleum (Petróleos Mexicanos (PEMEX)) had exclusive control over exploration, production, processing, refining, transportation, storage, distribution and first-hand sales of oil, natural gas, refined products and basic petrochemicals. From 1995, private entities have only participated in transportation by pipeline, storage and distribution of natural gas.
Pursuant to the Energy Reform, private investment is now allowed in all activities within the hydrocarbons sector. The exploration and production of hydrocarbons (upstream activities) are considered as strategic activities and the nation carries them out exclusively through either entitlements awarded directly to state productive enterprises (government-owned entities with a commercial purpose) or exploration and production contracts awarded to both state productive enterprises and private parties. All other activities within the hydrocarbon sector (midstream and downstream) may be carried out by state productive enterprises or private parties (commercial entities incorporated according to Mexican law, which may have up to 100% foreign investment).
SENER as policy maker
The functions of SENER are to:
- establish Mexico’s energy policy (in both sectors);
- ensure the efficient coordination of the different regulators in the energy industry;
- ensure the adequate and efficient development of the energy industry;
- establish the criteria for clean technologies, and the requirements to issue clean energy certificates (certificados de energías limpias);
- authorise programmes for the expansion and modernisation of the National Transmission Grid (Red Nacional de Transmisión) and the General Distribution Grids (Redes Generales de Distribución);
- award oil and gas (O&G) entitlements to state productive enterprises;
- establish the terms of O&G contracts; and
- promote the adequate supply of refined products within the Mexican territory.
SENER as regulator
SENER is also responsible for regulating and supervising Mexico’s O&G downstream sector, including, but not limited to, granting and revoking permits for the treatment and refining of hydrocarbons, as well as for foreign trade of hydrocarbons and refined products.
The Constitution also defines the roles of other participants in the energy industry that carry out certain activities considered strategic for the adequate development of the power and hydrocarbons sectors. These include:
- Energy Regulatory Commission (Comisión Reguladora de Energía (CRE)) as the regulator of Mexico’s O&G midstream and downstream (commercialisation and retail sales) sectors, and Mexico’s power sector;
- National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos (CNH)) as the regulator of Mexico’s O&G upstream sector;
- Energy and Environment Security Agency (Agencia de Seguridad Energía y Ambiente (ASEA)) as regulator of industrial safety and environmental protection in the O&G industry;
- National Centre of Energy Control (Centro Nacional de Control de la Energía (CENACE)) as the electric system operator;
- National Centre of Natural Gas Control (Centro Nacional de Control de Gas Natural (CENAGAS)) as the national pipeline system operator and capacity manager; and
- Federal Electricity Commission (Comisión Federal de Electricidad (CFE)) as the owner and operator of the power transmission and distribution system.
The Energy Reform also re-creates PEMEX and the CFE as state productive companies, to be engaged in O&G and power activities, respectively, having a more commercial role and nature than they used to have under the state monopoly regime, and which still have a significant stake in the relevant markets.
Reporting and disclosure obligations
In general, permit-holders and other industry participants must provide and respond to requests for information from SENER, within its respective jurisdiction and authority.
Permit holders must report to SENER for statistical, regulatory and supervision purposes, information relating to economic, technical and safety matters such as production and sales reports, inventory reports, suppliers’ and purchasers’ information (in the case of foreign trade), volume and quality of products or transactions, accidents, a facility’s maintenance programme and evidence of compliance thereto, among other information. The specific content and frequency of these reports and disclosures vary for each activity, for instance, refinery requires daily and weekly reports, while foreign trade requires quarterly reports.
Additionally, permit holders and other industry participants must comply with any request for information from other competent authorities, within their respective subject-matter jurisdictions, such as CRE, CNH, ASEA, CENACE, CENAGAS, the Ministry of Finance, the Ministry of Economy or the federal tax bureau (Servicio de Administración Tributaria), among others.
Monetary sanctions and recent behaviour
Failure to comply with the relevant laws and regulations may result in investigations by SENER (and other government agencies and regulators) and lead to the imposition of different sanctions, which may include fines, permit revocations and payment of damages.
All monetary sanctions with regard to the O&G downstream sector are indexed to the daily measuring and update unit (unidad de medida y actualización (UMA)). In 2021, the daily UMA value is 89.62 Mexican pesos. With regard to the O&G downstream sector, SENER’s fines range from 7,500 to 300,000 daily UMAs.
With regard to the power sector, SENER may impose fines for (i) failure to comply with accounting, operating, functional or legal separation obligations, (ii) failure to respond to requests by SENER for information, (iii) failure to cooperate with SENER’s inspectors, and (iv) failure to comply with the market rules (reglas del mercado) and other provisions issued by SENER, among others. SENER’s fines range from 2% to 10% of the gross income of the offender in the immediately preceding year, or from 10,000 to 200,000 daily UMAs.
The corresponding sanction will be applied after the following have been taken into consideration: (i) the damage caused or that may be caused; (ii) the intent of the infraction or lack thereof; (iii) the severity of the infraction; (iv) the economic capability of the offender; and (v) any repeat offences by the offender. In the event of recidivism, the fines imposed may be up to double the authorised threshold.
Non-monetary sanctioning powers and behaviour
Failure to comply with the relevant laws and regulations may result in investigations by SENER (or other government agencies and regulators) and lead to the imposition of different sanctions, which may include (i) warnings, (ii) temporary or permanent suspension of operations (power) or of the permit (O&G), (iii) removal or disqualification of personnel, and (iv) reversal of permits, among other sanctions.
Both the Mexican power and hydrocarbons sectors are composed of public interest and public policy (orden público), meaning they are essential activities for the people and take preference over any other commercial activities.
With regard to certain O&G downstream activities and all power-related activities, if a permit holder defaults in its obligations under a permit, SENER may (i) suspend and/or revoke the permit (only with regard to the relevant O&G downstream activities), (ii) temporarily take over the relevant assets, rights and facilities, or (iii) intervene in the permitted activity. In such cases, SENER may contract with state productive enterprises (Pemex or CFE) to guarantee the continuity of the services or supply covered by the permit (the limitation to only contract with state productive enterprises – vis a vis contracting with any third party – is currently being challenged in court).
A temporary takeover of the assets, rights and facilities necessary for the provision of the corresponding service will proceed, with regard to the relevant O&G downstream activities:
- for public utility causes established in the Expropriation Law;
- if the permit holder fails to comply with its obligations for causes not attributable to the permit holder (eg, a natural disaster or the disruption of public order); or
- when an imminent danger is foreseen that may affect national security, energy security or the national economy.
A temporary takeover of the assets, rights and facilities necessary for the provision of the power supply will proceed, with regard to power-related activities, in response to:
- natural disasters, war, strikes or the disruption of public order; or
- an imminent danger being foreseen that may affect national security, the national economy or continuity of the power supply.
SENER may intervene in the provision of the respective service when the permit holder fails to comply with its obligations and (i) endangers the supply of hydrocarbons (with regard to the O&G downstream sector) or (ii) endangers the quality, reliability, continuity and safety of the power supply (with regard to the power sector). Nevertheless, prior to intervention in the provision of the service, the permit holder must be allowed a set amount of time to remedy the underlying cause for the intervention.
SENER may suspend the relevant permit (only with regard to the relevant O&G downstream activities) when an imminent danger is foreseen that may affect national security, energy security or the national economy. SENER’s power to suspend O&G related permits is currently halted as it is being challenged in courts. The national security concept has been regarded vague and unclear and has created concern in the industry.
The corresponding sanction must be applied considering (i) the damage caused or that may be caused, (ii) the intent of the infraction or lack thereof, (iii) the severity of the infraction and (iv) repeat offences by the offender.
Recent and upcoming developments
Mexican power sector
The government has shown a clear disagreement with the current industry structure and functioning and has contemplated repositioning the CFE as the state monopoly. This position has resulted in several actions against the establishment, development of the Mexican wholesale market and the participation of private entities in power activities. The following are some of the most relevant actions taken by the Mexican authorities:
- Cancellation of power auctions
Early in 2019, at SENER’s request, CENACE cancelled the fourth long-term power auction to award contracts for the purchase of power and clean energy certificates (CELs). The auction was due to take place in November 2018 but was first postponed and later suspended by the new administration. Earlier long-term power auctions had achieved wind and solar prices that were among the lowest in the world. To date, it is not clear if and when long-term power auctions will be resumed.
- CFE Wish List
Early in 2020, a document containing a list of requests to be made to different energy regulators, thought to be drafted by the CFE and known as the CFE Wish List (Pliego Petitorio de CFE), was leaked by the media. By means of this Wish List, the CFE is requesting a series of actions and modifications by the power sector authorities aimed at strengthening the position of the CFE in the power industry. If implemented, these actions and modifications could have a significant effect on the sector’s permit holders and the projects they have developed, as well as on the banks or markets that have financed them. Some of these actions or modifications would have no legal or contractual basis or would contravene certain provisions of the Constitution and the legal and regulatory framework applicable to the sector.
The actions and modifications requested in the CFE Wish List, as implemented by or related to SENER, include the following:
- CELs: In October 2019, SENER amended the clean energy certificates guidelines established in 2014 to grant CELs to grandfathered power plants that had started operation before August 2014, mainly owned by the CFE. CELs were originally intended to serve as an economic incentive to renewable energy projects after the Energy Reform. Allowing the registration of CELs to already existing plants would create an excessive offer in the CELs market, with the consequent loss of their value. Several generators have filed amparo proceedings against the amendment of the CELs guidelines to protect their interests and investments. The courts have declared the amendment of the CELs guidelines as unconstitutional in certain of the amparo proceedings filed against said measure.
- SENER Reliability Policy:
- On 15 May 2020, SENER issued a policy on the reliability, safety, continuity and quality of the SEN (the Reliability Policy). The Reliability Policy mainly set forth general guidelines on the planning, functioning and operation of the SEN and the Wholesale Electricity Market (MEM) to guarantee power supply in the SEN under the principle of reliability. The Reliability Policy placed particular emphasis on the alleged link between the intermittence (variability) of the generation of renewable power plants (specifically, wind and solar photovoltaic facilities) and the reliability (or lack thereof) in the SEN. In general, the Reliability Policy gave SENER regulatory powers over the CRE and CENACE, contravening the industry structure created in the Constitution. Under the Policy, SENER imposed on CRE and CENACE additional procedures, analysis requirements, rules and costs, aimed at intermittent renewable power plants for the purposes of their interconnection to the grid, dispatch in the MEM and operation in the SEN. The Reliability Policy has been declared unconstitutional in several of the various amparo proceedings filed against it and SENER has issued a decree to withdraw it.
- Amendments to the Power Industry Law: On 9 March 2021, SENER published the “Decree by means of which several provisions of the Power Industry Law are added and modified” (the LIE Decree). The LIE Decree mainly modifies the dispatch order of power plants in the National Electric System (SEN) in similar terms as those proposed by SENER’s Reliability Policy; eliminates the basic services supplier’s obligation to enter into power hedging agreements exclusively through public bids; conditions the granting, modification, assignment, extension or termination of generation permits to the planning criteria of the SEN as determined by SENER; allows the granting of CELs to power plants that produce clean energy in spite of its commercial operation date; and modifies the grand-fathered regime for self-supply permits and independent power producers. In general, the LIE Decree seeks to regain the state monopoly in the power industry, disregarding the mechanisms that ensure a competitive electricity market, by seeking to privilege CFE’s economic benefit.
The LIE Decree has also been challenged in courts through amparo recourses and is currently suspended alleging its unconstitutionality. Notwithstanding the above, please note that, in certain amparo proceedings, the Second District Court for Administrative Matters Specialised in Economic Competition, Broadcasting and Telecommunications, has recently reversed the suspensions granted by the corresponding federal judges; however, there are still several amparo proceedings with a suspension with general effects.
Mexican O&G sector
Similar to what has happened in the Mexican power sector, the government has shown a clear disagreement with the current industry structure and functioning and has contemplated repositioning Pemex as the state monopoly. The following are some of the most relevant actions taken by the Mexican authorities within the O&G sector:
1. Suspension of bidding rounds
After the new administration took up the reins in December 2018, the CNH has suspended, at SENER’s request, the bidding rounds for O&G contracts and farmouts. It is understood that this suspension will last until the O&G contracts awarded during the previous administration result in effective investment and, most importantly, new O&G production.
2. SENER’s Import and Export Regulation
On 26 December 2020, SENER, jointly with the Ministry of Economy, published the Decree that establishes the goods whose import and export are subject to regulation by the Ministry of Energy (the Import and Export Regulation). The Import and Export Regulation mainly reduced the maximum term of import and export permits of hydrocarbons and liquid fuels from a maximum period of 20 years to a maximum period of five years, which discourages investment for planning and building infrastructure for hydrocarbon storage. The Import and Export Regulation contains numerous complex and challenging requirements that would be difficult to comply with and provides SENER excessive discretion for the analysis and approval in the granting of the relevant permits. The Mexican government justified the issuance of the Import and Export Regulation as part of its national strategy of public security in order to undermine the illicit market of hydrocarbons and petroleum products.
The Import and Export Regulation has been challenged in courts through amparo recourses and is currently suspended.
3. Amendments to the Hydrocarbons Law
The Mexican government seeks to reverse de 2013 Energy Reform and continues to implement measures to enhance and reinforce PEMEX’s control of the hydrocarbons industry through legislative and secondary regulation. As such, the Hydrocarbons Law has been subject to the following amendments under the current administration:
- Amendments to the Hydrocarbons Law: On 4 May 2021, SENER published the “Decree by means of which several provisions of the Hydrocarbons Law are added and amended” (the HL Decree). The HL Decree aims to secure the State's control over the industry activities. To achieve such control, the HL Decree mainly establishes new requirements (that private entities may find hard to comply with given Mexico’s current logistical infrastructure) to obtain a permit under the Hydrocarbons Law; sets forth new grounds for revocation of permits; grants SENER and CRE the power to suspend permits in case of imminent danger to national security, energy security or national economy; and grants exclusivity to PEMEX, and other state productive enterprises, to operate the infrastructure that has been suspended, temporarily occupied or intervened. The inclusion of the power to carry out the temporary or definitive suspension of permits creates a great deal of uncertainty for the permit holders, since its exercise is based on vague and subjective criteria, and grants broad and unjustified discretion to the authority in its exercise of such powers.
- Asymmetrical Regulations Decree: On 19 May 2021, SENER published the Decree by means of which the Thirteenth Transitory Article of the Hydrocarbons Law, published in the Federal Official Gazette on 11 August 2014, is amended (the Asymmetrical Regulations Decree). Said decree eliminates CRE’s authority to subject PEMEX to asymmetrical regulation principles, which had the purpose of limiting PEMEX’s power by imposing certain restrictions to the sale of its products, in order to prevent tied sales, price manipulation and other practices that could adversely affect other participants in the O&G sector and, eventually, the consumers.
Both the HL Decree and the Asymmetrical Regulations Decree have also been challenged in courts through amparo recourses and are currently suspended with general effects.
4. Other relevant measures
In early July 2021, SENER appointed PEMEX as the operator of the offshore Zama oil field, discovered by Talos Energy in 2017, which bordered with PEMEX’s AE-0152 block. This ruling is of particular relevance as most shallow-water blocks awarded in the bidding rounds are bordered by acreage awarded to PEMEX. SENER’s decision reinforces the concern that the state productive enterprises are favoured for political reasons.
As in other parts of the world, the energy industry is subject to extensive regulation and supervision by the government and regulatory agencies, such as SENER.
With the new administration, the Mexican energy industry has seen a shift with regard to the Energy Reform of 2013, with the current government seeking to strengthen both the CFE and PEMEX. Fear of a 180-degree shift has lessened since the Energy Reform required a constitutional amendment, which needs a supermajority quorum, an extraordinary amount of political negotiation and building a consensus between Mexico’s major political parties ‒ circumstances that did not occur in the mid-term elections and are unlikely to occur. A legal reform only requires a lower majority to be passed in Congress, but it must respect the constitutional principles that govern the industry.
Some of the challenges the participants in the Mexican industry have faced include the following:
- changes in public policies resulting in new regulation;
- changes in key personnel at the competent authorities, resulting in new interpretations of existing laws and regulations;
- lack of response by regulators about certain matters;
- budgetary cuts and austerity measures imposed on the regulators, which has hampered their operational capabilities, delaying their response time; and
- political pressure from the government to renegotiate contracts with the CFE and PEMEX.
The current regulatory crisis will end at some point and take the different actors to a negotiation table where they can create a more constructive dialogue and develop efficient solutions in a sector that is vital to the Mexican economy.
Notes for foreign investors
The Foreign Investment Act (Ley de Inversión Extranjera) was amended to eliminate restrictions on foreign investment in Mexico’s energy industry (both the power and O&G sectors). The only relevant consideration is that the holder of the related permits must be, in all cases, a Mexican commercial entity, which nevertheless can be wholly owned by foreign investors.
Pursuant to the Federal Labour Law (Ley Federal del Trabajo), at least 90% of the employees of any employer have to be Mexican. In technical and professional categories, employers should use Mexican workers unless no suitable candidates are available, in which case, they may temporarily hire foreign workers (up to 10% in the relevant specialised area). This rule is not applicable to directors and managers.
O&G permit holders must give preference (in terms of price, quality and timely delivery) to Mexican goods and domestic services, including the training and hiring, at technical and directive level, of Mexican nationals.
As a general rule, foreign investment in Mexico’s energy industry is protected by general bilateral investment treaties and free trade agreements. However, considering the state monopoly prior to the Energy Reform, an analysis of the specific treaty in each case is needed, as certain Mexican treaties provide for reserves (exclusions) regarding the Mexican energy industry. If an investment treaty does not have the respective reserves, it would suffice to qualify as an investor under the relevant treaty to be subject to the available protection.
Other regulators it works closely with
Comisión Reguladora de Energía
Energy Regulatory Commission (Mexico)
Comisión Nacional de Hidrocarburos
National Hydrocarbons Commission (Mexico)
Agencia de Seguridad Energía y Ambiente
Energy and Environment Security Agency (Mexico)
Secretaría de Hacienda y Crédito Público
Ministry of Finance (Mexico)
Secretaría de Economía
Ministry of Economy (Mexico)
Secretaría de Medio Ambiente y Recursos Naturales
Ministry of Environment and Natural Resources (Mexico)
Secretaría de Comunicaciones y Transportes
Ministry of Transportation and Communications (Mexico)
Comisión Federal de Competencia Económica
Federal Antitrust Commission (Mexico)
Centro Nacional de Control de Energía
National Centre of Energy Control (Mexico)
Centro Nacional de Control de Gas Natural
National Centre of Natural Gas Control (Mexico)
Fondo Mexicano del Petróleo para la Estabilización y el Desarrollo
Mexican Fund of Petroleum for Stabilization and Development