Collaboration with the Government is KeyWed, 12/25/2019 - 07:00
Q: What topics will define Mexico’s legal framework during this presidential sexennial?
A: From a legal standpoint, there have not been any reforms to the current framework. Nevertheless, some adjustments to the decisions taken during the previous administration are in place. An example of this is the elimination of asymmetric measures for both PEMEX and CFE. The purpose of asymmetric regulation is to recognize that the predominant player is the strongest one and, to promote competitiveness, it has to be treated differently. As entrant players do not hold the same penetration as PEMEX or CFE in their respective market segments, this creates an unnatural balance. Asymmetric measures limit the predominant player’s participation with stricter rules, whereas more liberal measures are in place for the remaining market participants. This regulation is based on best international practices. The elimination of these measures already took place for PEMEX’s natural gas segment, and it is expected the same will happen for CFE. These kinds of maneuvers adhere to this administration’s long-term energy agenda.
Q: What are your clients’ most-pressing concerns with this new landscape and how are you supporting them?
A: From one side, entrant players and companies willing to invest in the country are being cautious in executing further movement. There is some uncertainty in the air given the latest scores Mexico has received from international rating agencies. This risky environment impacts investment decisions. This does not mean cash flow will dry up, but for the moment investors are waiting to see which way the sector will go in the coming years.
Fortifying public enterprises of the state fosters competitiveness among private players. In this sense, more investment could come through a mechanism that supports CFE’s operations. On the other hand, companies that already have significant operations in the country are in “wait and see” mode because they are afraid that projects might be canceled. As legal counselors, we offer these companies the certainty and security that their contracts will move forward. Many companies that have active projects are thinking about expanding capacity but are running into administrative hurdles given the work overload this administration is facing. The former administration had already reached an accelerated rhythm and to date, the governmental transition has provoked a slow-paced rhythm from the management side.
Q: In this sense, what added value does Goodrich Riquelme & Asociados offer to its clients?
A: Given our expertise with government relations, we can execute administrative procedures with the authorities and advance the development of these projects. Mexico is a country with a strict bureaucratic and administrative load. Authorization, permission, supervision and inspection visits are required for every action. This process is frequent and constant during the life span of any project. Given this, maintaining a healthy relationship with the government is fundamental in any sector. Our firm can maintain strict compliance of a company’s general obligations with the relevant authorities.
Q: What market segments will be a priority for the firm in 2019-20?
A: As the sector moves into the PPA market segment, our services will also be focused in this direction. Over the coming years, the wholesale electricity market will not experience exponential growth but the merchant market will. Significant investment in the construction of solar parks, wind farms and combined cycle plants for the consolidation of private PPAs is gaining traction and private participation will continue. In addition, the industry is starting to look at distributed generation, which opens a significant commercial opportunity for the technologists immersed in this segment.
We have always been very keen to collaborate with the government. Many different agencies have come to us when revising public policy. We also give our opinion on behalf of the private sector. One of our goals is to maintain a close relationship with the entrant administration to bridge information gaps between public and private parties. In the short term, we also want to explain the new energy perspective to our clients and ensure they understand that despite there being a new vision, the sector requires investment. Our goal is to match clients with the projects that are appropriate for them.
Goodrich Riquelme y Asociados is a Mexican law firm with 85 years of experience. The full-services firm specializes in representing companies doing business in Mexico in all legal aspects of the oil and gas, electricity and clean energy industries.