New Constitutional Reform in Strategic Areas and Enterprises (Energy, Railways, Telecommunications and Natural Resources)

1. Transformation of CFE and Pemex, from State Productive Enterprises to State Public Enterprises Article 25 modifies the legal nature of the “State Productive Enterprises,” Comisión Federal de Electricidad (“CFE”) and Petróleos Mexicanos (“PEMEX”), to transform them into “State Public Enterprises.” Through this modification, the purposes of said public enterprises are redefined in order to eliminate their corporatist and mercantile connotation, whereby their principal purpose will no longer be profitability, but rather public service and “social welfare.” The other modification to Article 25 concerns the activities of: (a) planning and control of the National Electric System (“SEN”); (b) the public service of transmission and distribution of electric power; and (c) exploration and extraction of hydrocarbons, since it had been established that the laws were to regulate: (i) the execution of legal acts by the State Public Enterprises; and (ii) the compensation regime of their personnel for their performance, under the principles of efficiency, transparency, productivity and accountability, based on best practices; however, that principle will no longer be considered a constitutional parameter governing the conduct of the State Public Enterprises. 2. Incorporation of Lithium as a strategic natural resource For its part, Article 27 incorporates Lithium as a “strategic” natural resource in respect of which the government may not grant concessions to private companies, as is the case with radioactive materials. 3. Restrictions on the planning and control of the SEN and the Public Service of Transmission and Distribution Following the modifications to Article 27, in relation to (a) the planning and control of the SEN; and (b) the public service of transmission and distribution, the text establishing the prohibition on granting concessions over such activities is maintained; however, the express possibility of the State entering into contracts with the private sector in relation to such activities is eliminated. We consider that the elimination of the provision that expressly established the possibility of entering into contracts with private parties in the terms of the preceding paragraph does not necessarily imply a constitutional prohibition; however, it would appear that the position of the current Federal Public Administration is that the private sector should not intervene in any way in such activities. In this regard, we do not rule out that the elimination of such possibility is the result of an error in the legislative process, made in order to imply an absolute prohibition. 4. Private parties may not prevail over CFE in the activities of the electric industry Article 27 establishes that the private sector may continue to participate in the other electric power activities (other than those mentioned in section 3.), provided that its participation share in no case prevails over that of CFE. CFE’s purpose will no longer be to compete with the other players in the Wholesale Electricity Market, but rather to fulfill its social responsibility and to guarantee the continuity and accessibility of the public electric power service. We consider that the limitations on the participation percentage of private parties and CFE will continue to focus on the prevalence and importance of the latter, aligned with the principle of electric power generation under a participation scheme of 54% (CFE)/46% (private parties). The Decree leaves open the possibility that “the laws” may determine in detail the manner in which private parties participate in regulated activities, and therefore we do not rule out that their participation in another activity may be limited. 5. Activities related to Lithium, Internet Service, the planning and control of the SEN, and the activities carried out by the State Public Enterprises shall not constitute State monopolies For its part, Article 28 incorporates into the list of strategic areas that do not constitute a State monopoly: (a) activities related to lithium; (b) Internet service provided by the State; and (c) the planning and control of the SEN. In relation to the planning and control of the SEN, the Decree establishes that its objectives are: (i) to preserve the energy security and self-sufficiency of the State; and (ii) to provide the population with the lowest possible electricity prices, avoiding profit, in order to guarantee national security and sovereignty through CFE. Said article includes that the activities carried out by the State Public Enterprises and expressly indicated by the laws enacted by Congress shall also not be considered a monopoly. 6. Modifications concerning railway communication routes and the incorporation of assignments The other modification to Article 28 involves the distinction made in railway matters, by establishing that railways, both for passenger and freight transport, are priority areas for national development in terms of Article 25 of the Constitution. In this regard, the figure of “assignments” is incorporated so that, together with concessions and/or permits, they may be granted in the cases provided therein. 7. Transitory Provisions Congress shall have a term of 180 calendar days, following publication in the Official Gazette of the Federation, to make the corresponding modifications to the secondary laws in order to reflect and develop the constitutional modifications. Likewise, the transitory articles of the 2013 Energy Reform that contradict or run counter to the Decree shall be repealed. It is noted that the transitory articles do not mention anything regarding the acquired rights of current permit holders. It will be necessary to wait for and review the secondary modifications in order to gauge the impacts for the current participants in the Wholesale Electricity Market. For any questions and/or additional information, please contact our experts in Energy, Infrastructure and Natural Resources: Edmond F. Grieger, Partner:+52 55 5258 1007 | egrieger@vwys.com.mx Ariel Garfio Vázquez, Partner:+52 55 5258 1007 | agarfio@vwys.com.mx

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