Mexico moves closer to modifying rules of the fuels market

Mexico is moving closer to modifying the country's hydrocarbons law to reduce the competition state oil company Pemex faces in the fuels import market, market observers told S&P Global Platts.

The lower house of Mexico's congress April 14 approved by a sweeping majority a proposed bill, presented by President Andrés Manuel López Obrador, that modifies the existing hydrocarbons law. The bill moved to the Senate where it will be discussed and voted on in the coming days.

The bill, as approved, toughens the requirements for obtaining permits to import, export, transport, and distribute liquid fuels in the country. It allows regulators to cancel existing permits if companies are involved in theft or contraband, and allows them to cancel permits based on storage capacity requirements and also if the authority considers the operations pose an "imminent" danger to national security or the country's economy.

Lastly, it modifies a clause in the process of requesting a permit called "afirmativa ficta," which states if the authority does not answer a request for a permit within 90 days, the request is granted. Currently, if a request goes unanswered, it should be understood it was denied.

Based on the experience of bills recently presented by the president, it is likely to pass swiftly and become law, said Rodolfo Rueda, a partner specialized in Mexico's energy industry at law firm Thomson & Knight.

"It´s almost done," Rueda told S&P Global Platts April 15, citing as an example recently approved modifications to the country's electricity industry law, which passed both chambers in one week.

The president's Morena party has the majority in Mexico's congress and during the president's two years in office has already made a series of historic reforms, like one to the pension system that recently passed.

Carlos Vallejo, a lawyer at the National Association of Regulated Energy companies, told Platts he expects the bill to be passed in the Senate within a week and be approved before the end of April. "Companies are already preparing their legal defense," he added.

Canceling permits in cases of theft and contraband is positive for the market and the move is welcomed, Rueda said. But eliminating "afirmativa ficta" and permitting cancellation on grounds of national security "raises flags" of concern as they hurt legal certainty. "People are really concerned at the possible interpretations the authority can have of this," he said.

Small modifications

Lawmakers who approved the bill the president presented added a clause that forces regulators to notify the permit holder of any suspension and grant the company the opportunity to present arguments in its defense. The regulator will then have a period to answer based on those claims. In case of cancellation, the regulator will have to justify its decision.

"This is a positive, as it is evidence that the government is willing to listen to the industry and make concessions," Rueda said, noting that previously passed bills were not modified at all.

Vallejo agreed that it is better for companies to be able to defend themselves, but doubted the modifications make a meaningful improvement because "uncertainty in the sector remains."