Keeping a Closer Eye on the Energy Counter-ReformBy Cas Biekmann | Fri, 03/05/2021 - 09:20
Q: How have the firm and its partners worked to solidify its position in Mexico?
A: In 2020, we placed an emphasis on the firm’s industry groups: energy, life science, automotive, banking and real estate. We offered our clients integral legal and business support to attend their needs in specific industries. Last year, we experienced a decline in new projects, so our goal was to provide daily support and solidify our relationships. We also worked hard to attend to the needs of our lawyers and other personnel, to keep the firm working together and get through the difficult times everyone faced. The strategy, therefore, was twofold, both inward and outward. Our staff and our clients are the base of our success.
Q: The firm has focused on facilitating bilateral contracts and litigation. How has this developed in 2020 and what are your forecasts for 2021?
A: Last year, we were very active in regard to power purchasing agreements (PPAs) with our clients, as well as in litigation against government measures in the energy sector. Fortunately, most of the PPAs of both large, medium and distributed generation-sized projects continued their process. We successfully closed several as a result. It took a bit longer to close, but interestingly, we saw interest from clients to close them in order to switch to renewable energy. These clients did not halt their green transition strategies. The PPAs we have not closed yet will be closed in the coming months.
In the litigation arena, we provided several of our clients with preventive advice in regard to arbitration and legal alternatives for clients who develop energy projects and commercialize them in the electricity market. We advised them on treaties that could protect their investments preventatively, so that they have a legal strategy to defend their investments against changes that we are seeing in the Mexican market due to measures taken by the government that have obstructed new developments and self-supply power plants structures. We have also submitted several challenges and amparo claims against these policies. Fortunately, all these claims have been admitted and suspensions against the measures were granted. We are moving in the right direction but we are still waiting on the final rulings. Since other companies have achieved suspensions as well, we expect this final ruling to be favorable.
Q: Mexico’s Supreme Court has delayed its final decision on the matter. How do you interpret this decision?
A: From one side, all the amparos that have been ruled in favor of private developers are a good sign. They have been resolved relatively quickly, which is good news coming from the judiciary system. However, this delay of issuance from the Supreme Court in connection with the constitutional controversy raised by COFECE can be interpreted from two points of view. First, it could be a good sign that the court will take longer to examine the substance of the case and solve it according to the legal system it needs to follow. However, we always want to see justice being issued in an efficient manner. In recent years, the Supreme Court has shown interest in working smoothly to review amparos. It would, therefore, be better if the process were accelerated. If the court needs more time to issue an adequate response in line with our constitution, this could be a positive sign as well.
Q: What would be the effect on Mexico’s industrial sectors if the government moves ahead with its plans to absorb independent regulators into respective ministries?
A: It would be bad news, since it would send a very negative signal to national and international investors. It would be a huge step back in what Mexico has achieved in terms of strengthening its autonomous institutions. This administration has said that those autonomous institutions have no purpose and cost too much money and this is why they want to absorb them. I think this would be a bad decision for the government to take this step. However, I think the government has already taken a step back. It was moving quickly but the Congress and opposition members stepped up against the decision. It will be a difficult task to absorb these independent regulators, while facing opposition from international and local commercial chambers and international governments with investments in Mexico that depend on these regulators and their neutral, efficient work.
Q: How can state governments pursue their interest in renewables despite the federal government’s direction?
A: There are two ways they can follow their strategies. One is related to the political arena. The states need to lobby the federal government to support project development in their territory. This is important because policies on the federal level tend to obstruct new private renewables projects.
Second, states and municipalities have provided incentives for the development of energy projects in different regions. They provide preferential fees when granting local authorizations and licenses in order to attract developers to their area. This is an important strategy; nevertheless, projects must be authorized by CRE, SENER, CENACE and SEMARNAT in order to generate energy. It is important that local governments continue to put pressure on these governmental entities and to issue the required permits needed for the development of energy projects. If you do not have these federal authorizations in a timely manner, all the local incentives and enthusiasm are a wasted effort.
Q: Have you noticed a change in M&A activity as a result of last year’s policy changes?
A: Important companies have still been active in M&A, precisely to acquire more greenfield and brownfield projects and include them in their portfolio for future operations. There is still interest in greenfield project acquisition in the Yucatan peninsula. Brownfield projects are more complicated because they deal with commercial operation dates (CODS) closing in. Investors want to avoid regulatory risks, so if a COD is scheduled in the near future, investors fear they could face a lot of risk when it comes to authorizations. Therefore, they are looking toward greenfield projects for a reliable future pipeline.
Q: Where will Von Wobeser y Sierra’s focus be in 2021?
A: 2021 will be a very difficult year but there will be many opportunities as well. We will continue with our same strategy, working hand in hand with our clients in a preventive manner to protect their investments in Mexico and to help them strive for better projects as well. We will also work closely with the chambers involved in the energy sector, as well as participating in the lobbying process with different administrative and regulatory bodies to activate the regulatory processes needed to kickstart projects once again. Our goal is to help our clients improve their relationships with the regulatory bodies and help companies find opportunities by transitioning to clean energy. We try to explain that despite the uncertainty in the sector, it is also a moment of opportunity to look for energy supply alternatives in a competitive market. Opportunity always exists, we just need to look closely and guide our clients toward it.
Furthermore, we will also monitor the energy counter-reform. We must be attentive to what we hear from this administration because a priority for its legislative agenda is to pass a structural energy counter-reform through Congress. It is crucial to follow these developments in order to protect the interests of all companies investing in Mexico’s energy sector so we can react accordingly with a legal and lobbying strategy that includes all the chambers and embassies.
Von Wobeser y Sierra is a law firm founded in 1986. It offers integral legal solutions and specializes in 16 practice areas. In the energy sector, it focuses on helping private players navigate Mexico’s complex legal landscape, as well as environmental issues.