Juan Fernando Flores Ruiz
Director General
Green Energy Fuels / SIFRAP
Expert Contributor

The Energy Sector as Seen by the Regulators and the Regulated

By Juan Fernando Flores Ruiz | Tue, 05/26/2020 - 09:10

In Mexico, like elsewhere, there are those who regulate and those who are regulated. Let's review the energy sector’s regulations and think about how they can best be implemented for both the Regulated and Regulators.

In 2013, the Energy Reform was inaugurated, approved by the Senate of the Republic on Oct. 11 and promulgated by the executive branch in December of the same year. It was followed by the creation of secondary laws, which consisted of a package of new laws, reforms and structural modifications.

It should be noted that from the moment the relationship between the Regulators and the Regulated created by the reform came into being, it has been one of mutual learning, since regulatory bodies such as CRE, CNH and ASEA were adapting at the same time the reform was being implemented in the energy sector.

Among the new laws were the following: Mexican Petroleum Law, Law of the Federal Electricity Commission, Hydrocarbon Income Law, Hydrocarbon Law, Mexican Petroleum Fund Law, Geothermal Energy Law, Law of Coordinated Regulatory Bodies, Law of the National Agency for Safety and Environmental Protection and the Electric Industry Law. Additionally, 12 laws and provisions were added to the reforms, including additions and exceptions.

Supported by the reforms and the new laws, new lines of business and service were created. Hydrocarbons became the base of approximately 100 lines of business, while also ushering in new competitors. The Energy Reform boosted growth and made it possible for other players to enter the value chain.

The opening of the market also meant that companies that were only signing contracts with the state, could now obtain permits to create new business lines where they could be the operators, generators and the marketers of the product. However, this introduced some obstacles as well. Due to their novelty, the new rules of the game were not very clear and the only ones who were certain of how to work under the new rules were those competitors who had both the experience and the resources to do so.

The Energy Reform has also brought benefits for the hydrocarbons sector. It has generated the development of important economic activities that have increased revenue for the country, nearby regions and even on a global scale. We also can see how the industry bidding rounds have contributed significantly to the country's revenue stream, especially with the most recent case of REPSOL that discovered two oil fields. Consequently, opportunities are now available to import petroleum products and activate the value chain, in addition to generating significant investments in storage and transportation.

With the opportunity to participate in these business segments, different regulations were put in place, including the need for permitting through CRE and the requirement to submit environmental studies to ASEA and social studies to SENER. Companies now have the obligation to monitor and meet the requirements of each of the various regulatory authorities.

Today, there is a need for regulatory bodies to remain open to creating forums and one-on-one meetings with those who are regulated. In this way, it will be easier to understand the possible lines of business available to companies and to work together to simplify the procedures for each project, as well as avoid cases where a company is left out in the cold because it did not know or understand the law.

We can presume that greater mutual understanding between the two parties involved, the Regulator and the Regulated, will result in stronger investments in the energy sector, making it more secure and fluid, as well as helping to create more employment and promoting a sustainable economy.

The Regulated must learn how the energy sector is regulated in Mexico, but at the same time, the Regulators must be open to learning about the new opportunities and lines of business that are emerging from the Energy Reform.