May 12, 2021
Federal judge Rodrigo de la Peza made the reform to the Hydrocarbons Law (LHI), promoted by President Andrés Manuel López Obrador, practically inoperable, as he preliminarily declared key sections of it unconstitutional. He described the law as an "unpredictable" and "badly timed" disruption to private investment.
Between Monday and Wednesday, De la Peza has granted 18 temporary injunctions that freeze, with broad effects, five articles of the reform to the LHI, which has been in force since May 5. His colleague on the federal bench, Juan Pablo Gómez Fierro, granted temporary injunctions against only three articles.
De la Peza prohibited the Government from applying articles 51, 57 and 59 A, as well as the fourth and sixth transitory articles (directions given by Congress for the law's implementation) of the reform. He ruled that they violate the constitutional principles of free competition in the energy sector (created by constitutional amendment in 2013), as well as legal security of contracts for private companies and their right to hold property.
Article 59 A, which was not included in the suspensions issued by Gómez Fierro, allows the Government to suspend permits "when an imminent danger to national security, energy security or to the national economy is anticipated." Meanwhile, article 51 subjects the granting of permits to create petroleum storage capacity to approval by the Secretariat of Energy (Sener), among other requirements.
Like Gómez Fierro, De la Peza will decide on May 14 if the temporary injunctions will become permanent. That would freeze the reform to the LHI indefinitely, as happened last March with similar changes to the Law of the Electricity Industry (LIE), which aimed to favor the CFE (state-owned Federal Electricity Commission) over private producers (which thereby sought to reverse the 2013 reform opening the electricity market to private competition).
De la Peza harshly criticized the reform to the LHI, applying criteria that anticipate that he will also suspend another recent reform to the same law, passed by Morena (Movement for National Regeneration, party created by Lópex Obrador in 2014) in Congress. This law seeks to eliminate the regulation of Pemex (the state-owned oil company, which, under the 2013 Energy Reform, was required to compete with private companies and lose government subsidies). The law has not yet been published in the Official diary (which is necessary to make it in effect.)
Between Monday and Wednesday, De la Peza has granted 18 temporary injunctions that freeze, with broad effects, five articles of the reform to the LHI, which has been in force since May 5. His colleague on the federal bench, Juan Pablo Gómez Fierro, granted temporary injunctions against only three articles.
De la Peza prohibited the Government from applying articles 51, 57 and 59 A, as well as the fourth and sixth transitory articles (directions given by Congress for the law's implementation) of the reform. He ruled that they violate the constitutional principles of free competition in the energy sector (created by constitutional amendment in 2013), as well as legal security of contracts for private companies and their right to hold property.
Article 59 A, which was not included in the suspensions issued by Gómez Fierro, allows the Government to suspend permits "when an imminent danger to national security, energy security or to the national economy is anticipated." Meanwhile, article 51 subjects the granting of permits to create petroleum storage capacity to approval by the Secretariat of Energy (Sener), among other requirements.
Like Gómez Fierro, De la Peza will decide on May 14 if the temporary injunctions will become permanent. That would freeze the reform to the LHI indefinitely, as happened last March with similar changes to the Law of the Electricity Industry (LIE), which aimed to favor the CFE (state-owned Federal Electricity Commission) over private producers (which thereby sought to reverse the 2013 reform opening the electricity market to private competition).
De la Peza harshly criticized the reform to the LHI, applying criteria that anticipate that he will also suspend another recent reform to the same law, passed by Morena (Movement for National Regeneration, party created by Lópex Obrador in 2014) in Congress. This law seeks to eliminate the regulation of Pemex (the state-owned oil company, which, under the 2013 Energy Reform, was required to compete with private companies and lose government subsidies). The law has not yet been published in the Official diary (which is necessary to make it in effect.)
In his ruling, De la Peza said:
"There is the possibility that the complaining party (a private company which had been granted a contract for exploration, extraction and/or processing of oil) shows that (the law) is contrary to the Constitutional text, (such) that Pemex recovers a position of being the preponderant agent in the sector, and is not just another participant in the market, to the detriment of the position that private companies have begun to reach.
"This undermines the substantive reasons for the Constitutional reform (of 2013), since a fundamental premise of the energy reform, allegedly, was to open said sector to the free market, precisely with the purpose that the Mexican State could really take advantage of its natural resources ..., and that this would result in the satisfaction of the needs of the end consumer at more affordable prices.
The judge emphasized that the 2013 reform sought to generate in private investors a "state of legitimate trust" for long-term projects."In other words, there is a probability that the complainant will be able to demonstrate that the purpose of the energy reform was precisely to obtain the participation of other competitors and, above all, other more efficient technologies, and thus ensure more affordable prices and a continuous supply of hydrocarbons, and that the law being challenged will reduce investment by the country's private hydrocarbon sector, which is contrary to the meaning and scope of the Constitutional reform, which was intended to encourage and protect it."
The judge also emphasized that the law does not define the concepts of "imminent danger to national security, energy security or to the national economy", nor is there a mechanism to compensate companies whose permits are suspended."The law being challenged constitutes an unforeseen and badly timed change that breaks with the commitment to long-term market stability, thereby affecting the fundamental right of these companies to the legal security of their contracts," says the ruling.
"Contrary to the principle of legal contractual certainty and security established in articles 14 and 16 of the Constitution, a situation of legal uncertainty is generated by establishing a power within the Secretariat of Energy and the Energy Regulatory Commission (CRE) which can exercised arbitrarily or capriciously. It establishes a possible motivation to decree the suspension of a permit," he concluded.