On March 4, 2021, the “Decree amending and adding various provisions of the Hydrocarbons Act” was published in the Federal Official Gazette.
The reform bill was submitted on March 26, 2021 by the Executive Branch, and was subsequently discussed and approved by the Chamber of Deputies with certain amendments and, in a second act, approved by the Senate without additional amendments. This reform seeks to amend articles 51, 53 second paragraph, 56 section XI and 57, as well as to add a section XII to article 56, article 59 Bis; and a second paragraph to section II of article 86 of the Hydrocarbons Act. The main points of the reform relate to: • Minimum hydrocarbon storage capacity. • Negative administrative silence (negativa ficta) in the permit assignment procedure. • Hydrocarbon smuggling. • Suspension of permits. • Revocation of permits in the event of recidivism. Specifically, the reform amends the following: 1.- Permits granted to Petróleos Mexicanos, to other State Productive Enterprises and to private parties shall be subject to demonstrating that they have the storage capacity determined by the Ministry of Energy. 2.- It modifies the regime for the authorization of permit assignments, changing from a positive administrative silence (afirmativa ficta) to a negative administrative silence (negativa ficta), once the established term has elapsed without a resolution by the competent authority. 3.- It modifies the sanctions regime in order to complement the monetary sanctions provided for by imposing the revocation of the operating permit on all parties that repeatedly engage in the following conduct: a) Non-compliance with the provisions applicable to the quantity, quality and measurement of hydrocarbons and petroleum products; and b) The modification of the technical conditions of systems, pipelines, facilities or equipment without the corresponding authorization. 4.- It empowers the Ministry of Energy and the Energy Regulatory Commission to revoke the permits issued when the holders thereof commit the crime of smuggling hydrocarbons, petroleum products or petrochemicals and this has been determined by a final resolution of the competent authority. 5.- It empowers the corresponding authorities to suspend the permits issued under the terms established by the Hydrocarbons Act, when an imminent danger to national security, energy security or the national economy is foreseen. Likewise, the reform allows the authority that issued the permit subject to suspension to take charge of the administration and operation of the permit, as well as to use the personnel that the permit holder is using, to hire a new operator or a combination thereof. Said suspension shall have the duration determined by the authority. Additionally, it is established that, for continuity of operation, the authority may hire State Productive Enterprises for the management and control of the occupied, intervened or suspended facilities. Notwithstanding that, among the amendments to the reform bill made by the Chamber of Deputies, certain rights were included for permit holders (such as the right to a hearing in the event of the suspension of a permit), the reform contains certain provisions that have generated uncertainty for permit holders and investors, given that: (i) they could undermine the legal certainty of permit holders; (ii) in the event that the authority proceeds with the suspension of a permit, their operation could be placed in the hands of PEMEX or the State Productive Enterprises; and (iii) they could contravene certain constitutional provisions, as well as international treaties to which Mexico is a party. Finally, we recommend our clients and friends: (i) review the situation and current status of their permits, since, under the new regime of sanctions, revocations and suspensions of permits, it is vital that permit holders be up to date in complying with each and every one of their obligations; and (ii) consider the legal remedies available to challenge any harm they may suffer as a result of the reform. At Von Wobeser we have an Industry Group focused on the Energy and Natural Resources industry with specialists in the most relevant areas of the sector (including Oil and Gas, Litigation, Arbitration, among others) ready to advise you in analyzing your current situation, in order to comply with all your obligations, establish measures aimed at mitigating the risks derived from the reform, as well as to initiate any action aimed at protecting the rights of permit holders. For additional information about our firm and our team, click here. Likewise, you may contact our experts: Alberto Córdoba, Partner: +52 (55) 5258-1016 | acordoba@vwys.com.mx Luis Burgueño, Partner: +52 (55) 5258-1003 | lburgueno@vwys.com.mx Edmond Grieger, Partner: +52 (55) 5258-1048 | egrieger@vwys.com.mx Adrián Magallanes, Partner: +52 (55) 5258-1077 | amgallanes@vwys.com.mx
