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Accountability and Consequences

By Santiago Fabián Arroyo Seguedo - Ursus Energy


By Santiago Arroyo | Director General - Tue, 05/30/2023 - 11:00

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"It is not only what we do, but also what we do not do, for which we are accountable." — Moliere.

In 2019, the Energy Regulatory Commission (CRE) began a process of applying energy policies derived from the change of government that occurred in December 2018. It is well known in the energy industry that this economic policy changed the paradigm of competition in the Mexican energy sector, moving from a state of market competition to an autarky.

As a direct consequence, CRE and other control and regulatory authorities in the energy market have carried out acts to exclusively favor the energy companies of the Mexican state to the detriment of their competitors emanating from the private sector, which resulted in a series of legal disputes that ended with the regulated private sector companies and their regulators engaged in legal battles in the federal courts of the country.

Subsequently, these judicial disputes led to a series of consequences in spectrums as diverse as international disputes around the USMCA, as well as parliamentary battles in attempts to modify the Constitution and, some pyrrhic victories for the federal Government, such as the reform of the Electricity Industry Bill, but which, subsequently, were sent back to the federal courts. To these claims were added f our most important trading partners in the USMCA dispute processes.

However, in the day-to-day running of CRE and regulators like  the Energy and Environment Security Agency (ASEA), in addition to taking advantage of the regulatory impasse imposed on the entire energy industry as a result of what has already been described, undertook a series of actions, under the pretext of carrying out supervision and verification of the regulated companies that triggered a flood of administrative proceedings against them, with regulators revoking permits and authorizations, removing several hundred private companies from operation.

It is this action of CRE and its officials, in addition to having political and, apparently legal, support by basing their determinations on the energy policy of the federal executive, that is based on a "legal lock" provided within article 27 of the Law of Coordinated Regulatory Bodies in Energy Matters (LORCME), which indicates:

"Article 27.- The general rules, acts or omissions of the Coordinated Regulatory Bodies in Energy Matters (...)


In well-founded and reasoned decisions that are approved by the Coordinated Regulatory Bodies in Energy Matters, no damage or prejudice in the economic sphere may be alleged by those who carry out the regulated activities." 

This legal provision allows the officials of CRE and the National Hydrocarbons Commission (CNH) to avoid responsibility for damages caused to those regulated by the resolutions they issue; that is, in the event that their resolutions are adjusted to the laws, companies (private or state), they may not allege or sue by any legal means indemnizations.

However, several dozen private companies that have challenged administrative resolutions form  CRE, in recent months have achieved resolutions favorable to their interests, but with a very interesting detail: the federal courts determined in their judgments that CRE failed to substantiate or motivate its resolutions.

Given this, it should be noted that, for the private companies that benefited from these judgments, reaching this point implies having all investments stopped, resulting in the loss of billions of pesos by combining all companies in this situation, thus representing a fall in more than 70% in the application of private investment in the industry, according to data from Mexico Evalua. This is the main indicator in determining the confidence of investors.

Thus, by combining all factors from a legal point of view, it opens a possibility that private companies benefiting from the judgments that revoke the acts of authority of CRE and that have accounted for their losses and damages for not operating in the Mexican energy market can go to court again.  But now to recover some or all of what they have stopped earning. This can also be an important factor to mitigate the pressures on the controversies derived from the USMCA; however, we cannot consider it as a viable way out at all, especially given the recent escalation of tensions.

In this sense, CRE officials are traveling through quite dangerous terrain, in case the private sector decides to begin actions to force the Mexican state to pay for the damages caused. Since there are also possibilities for that, in very specific cases, responsibility in criminal matters is considered for constituting crimes committed by public servants.

However, one possible way to avoid catastrophic scenarios for public officials, as well as for the public Treasury, would be to make the actions of CRE more flexible, since the strict application of energy policy is already beginning to be overcome by the Constitutional courts.

Therefore, there is enormous importance in considering the responsibility of public officials before the governed and that this action will always bring consequences.

Photo by:   Santiago Fabián Arroyo Seguedo

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