Law Firm Explores Options Ahead of New Energy Laws
President Lopez Obrador’s new energy bill has prompted service providers in Mexico’s electricity sector to organize webinars and conferences with the purpose of educating companies on the impacts this initiative could have on stakeholders, as well as what options they could have in case the bill becomes an obstacle to their operations. An example of this was the recent webinar “Counter-Energy Reform and Its Impact on Companies,” organized by Mexican law firm Sánchez Devanny and sponsored by the Energy Clusters of both Queretaro and Sonora.
During the webinar, partners from the firm moderated five presentations. Tania Trejo began the webinar and spoke of the recent timeline of events that led to the passing of this initiative. Trejo highlighted that this administration’s overall plans regarding the reshaping of the electricity market actually began between December 2018 and January 2019, which is when the fourth long-term electricity auction was suspended and the tender for the construction of transmission lines between Ixtepec, Oaxaca and Yautepec, Morelos were cancelled. Trejo also noted the changes made in SENER’s requirements to issue Clean Energy Certificates (CELs), which benefitted CFE facilities but increased the risk of flooding the market with CELs, thus reducing their value and industry reliability.
Max Ernesto Hernández led the second presentation by reviewing the judiciary and arbitration processes available to operators in case of legal controversy. He stressed the importance of coordinating legal defenses with investors, suppliers and service providers of each project. He highlighted the importance of informing all stakeholders of how they would be affected if a project was threatened by the new laws. Hernández said there was no template for a project’s legal defense; each legal strategy has to be tailored to the energy project it is defending. He also highlighted the importance of operators taking the time to exhaustively revise their contracts clause by clause so they can best identify the nature and extent of their vulnerability and exposure. Hernández said that while there was likely to be a collective reaction to resulting energy price increases, it was also possible that those increases would be covered by subsidies.
The third presentation was hosted by Mauricio León, who explained that Sánchez Devanny’s predictions indicated that the law would be approved by the Senate and enacted by the end of March. However, operators should be ready for any surprises, given that some enforcement mechanisms might be activated before the final approval of the law takes place. León also mentioned that operators could expect a reaction to the law from NGOs and public organizations, such as GreenPeace. Mexico’s Supreme Court might side with operators, given its decision in early February to strike down certain aspects of this new legal framework on the basis that it opposed fair market competition, as reported by Expansión.
The webinar concluded with brief presentations from Alfonso López and Veronica Esquivel, both of whom reviewed international arbitration options available to operators and also additional resources from institutions such as state governments, industry chambers and international treaties (to read more about the impact of USMCA on other aspects of the energy industry, click here). Esquivel detailed how specific mechanisms of conflict resolution vary depending on the outcome the protesting party seeks. Therefore, operators must decide if they want their project to come back online or if they are seeking compensation for lost revenue instead.
Although León predicts that the law could be on the books by the end of this month, reactions to recent events suggest that the ongoing political process surrounding the law could complicate its enactment. El Universal reported over the weekend that Acting Assistant Secretary of the US Department of State's Bureau of Western Hemisphere Affairs Julie J. Chung made clear that US Secretary of State Antony Blinken will bring up the law in his upcoming meeting with Minister of Foreign Affairs Marcelo Ebrard. The US Department of State’s position is that the Mexican government should listen to the objections made by foreign energy investors and respect their rights stipulated in commercial treaties. Meanwhile, Canadian diplomats are also pressuring Mexico to revise the aspects of the law that impede renewable energy development for environmental reasons.