Reforms in Mexico's Energy Law

On October 28, 2008, Mexico's Congress passed a legal reform that gives PEMEX, Mexico's state-owned oil monopoly, more autonomy to make decisions with regard to private contractors, more freedom to keep revenues to be used in its own infrastructure and exploration, and improves PEMEX's transparency and corporate governance.

The legal reforms fall far short of the energy reform plan that President Felipe Calderón had initially proposed and in no way implies any privatization of PEMEX, despite what those who opposed the bill say. It also does not paint a clear picture on how much business these reforms may mean for foreign businesses looking to sell their products and provide services in Mexico.

Two things are clear:

First, this is a signal that Mexico realizes that it cannot improve its outdated infrastructure and increase its much needed tax revenue without help from foreign service providers (the bills passed by an overwhelming majority across party lines). With the price of oil, refining capacity and proven reserves all falling, and Mexico's announced plan of building at least one new major refinery, this means there should be new and exciting opportunities for foreign businesses.

Second, the new constitutional regulations provide some steadier legal footing for foreign businesses doing business with PEMEX. Prior to these regulations, foreign service providers had been operating on a limited basis with PEMEX. There was little legal certainty for these foreign service providers, given that the Mexican constitution explicitly prohibits granting any concessions or contracts on the exploitation of oil reserves, reserving this activity exclusively to the sovereign (except in a few limited circumstances). The legal reform, however, includes constitutional regulations which specifically address the conditions under which foreign service providers may engage with PEMEX, eliminating some of the uncertainty which had previously existed.

Other noteworthy points of the reforms:

• Allows PEMEX to sign contracts with incentives
• Allows PEMEX in certain circumstances to invite specific companies to bid or award contracts directly, specifically circumventing the need to publish a request for bids as generally required for all government contracts

The omnibus bill that was passed affects seven different legal codes and regulations. Jackson Walker has significant experience in representing service providers in several aspects of the oil industry in Mexico, including financing, refinery, infrastructure, and distribution. In addition, Jackson Walker has important contacts with people and firms that were significantly involved in the drafting and negotiation of the new energy legal reforms.