Iván Alemán
Chief of the Legal Unit
Ministry of Energy
/
Insight

Contracting from the SENER Perspective

Wed, 01/25/2012 - 13:09

Iván Alemán Aleksei, Chief of the Legal Unit at Mexico’s Energy Ministry, states that in order to achieve the change that the current President is aiming for in the energy sector, the first step would be to review the industry’s regulatory framework. “There are several changes that need to be made within the current regulatory framework of the energy industry,” Alemán Aleksei explains. “The first that comes to mind is the Pemex Law: this regulation should allow a better flexibility in the NOC’s operation, rather than holding the company back.” The current Pemex Law, though, is not the problem. “The issue has more to do with the way we interpret the law, rather than the law itself,” Alemán Aleksei says. “Nowadays, Pemex E&P’s contracting process, for example, has to undergo four di†erent approval processes: the Pemex E&P Board, the Pemex E&P Board of Directors, a committee within the Pemex Board of Directors, and the Pemex Board of Directors. This is not obliged by law; but rather by the internal regulation of the NOC. With a simple change within that internal regulation, two of the instances could be eliminated, streamlining the process while still complying with what the law orders.”

Alemán Aleksei believes that in order to optimize the impact of reform of the country’s regulatory framework, a basic change needs to take place within the working culture of the industry. “We can have a proper regulatory framework, but if we do not have the ability to change our working culture, it will not lead to success,” he stresses. This remark implies that Mexico must break the paradigms which have long ruled the energy industry. E†orts have to be made in the regulatory, educational, and cultural sense Civil servants, authorities, and private players do not usually know about all the legal options that contracting with Pemex allows today. “Contracts in the private sector require a contractually agreed domicile to be defined, so all controversies are solved under the law of the place selected,” Alemán Aleksei explains. “For some reason, all of the contracts in the oil and gas industry have established Mexico City as the contractually agreed domicile. This creates additional risks for international companies that might prefer to be regulated under di†erent legal terms. It has become part of the Mexican contracting culture: even when we are not obliged to submit our contracts to Mexican jurisdiction.”

“The second topic that should be discussed is the Constitution,” Alemán Aleksei says, even though it will ignite a heated political debate. He believes that people within the new administration and energy experts should exchange considerations on the opening of certain segments of the industry, such as transportation or even shale gas. “It is also pertinent to eliminate the distinction that Mexican law makes on basic and non-basic petrochemicals,” Alemán Aleksei a·rms. “Mexico is the only country in the world that has this distinction, and this hinders development and openness for the whole petrochemical value chain.”

Most of the subjects that Alemán Aleksei discusses would mean major alterations to the Constitution’s 27th article, but he also believes that, in order to achieve legal consistency, other articles should be modified. “Several changes need to take place through a set of reforms that addresses the Constitution, the Pemex Law, the regulatory law for Article 27, and related secondary laws – such as the CNH Law to strengthen the regulatory power of the Commission and clearly define its role, the CRE Law, the Foreign Investment Law – among several others.”

The main role today of the Legal Unit at Mexico’s Energy Minister is to advise Pemex on what can and cannot be done to obtain greater flexibility in its contracting practices. “The Energy Minister is there to debunk the false perception of restrictions that constrain Pemex’s operations,” Alemán Aleksei explains. “Pemex needs additional flexibility in the way it works, and the law already allows this. We work as intermediaries to clearly define the limits of the regulatory framework, enumerate the existing alternatives for Pemex, and assist the company in its decision-making processes. At the end of the day, the regulatory framework grants certain flexibility in the decision-making process, but this is only going to work if decisions are approached with the required consideration, assessing all alternatives and documenting the process,” Alemán Aleksei concludes.