/
News Article

Effectively Navigating the Legal Framework for Improvement

Wed, 07/22/2015 - 10:35

Moderator: Aurora Pierdant, Director General of WISE Consultants
Panelist: Raul Romero, Partner at Rodríguez Dávalos Abogados
Panelist: Carlos Morán, Partner at Cogan & Partners

Carlos Morán, Aurora Piedrant, and Raul Romero

Aurora Pierdant began by reminding the audience about the intricacy, complexity, and attention to detail in the new legal framework for the oil and gas sector. In her view, this framework opted for transparency and flexibility, one of the achievements in the Reform. There are a couple of things to consider when navigating the upstream sector. Mexico is creating new rules, contracts, norms, regulations, and features in a market that is not yet mature. In this sense, there are many rules and no market where to implement them. “How should the communication channels be opened even further between the public and private sector in order to encourage an open dialogue?” she asked. 

Carlos Morán intervened and claimed the framework has been created from scratch and has been delivered piece by piece. This means there is a lot of spaces of uncertainty and makes it difficult to discern which regulator takes charge and when it has to work together with another regulator. Sometimes, operators find it difficult to see who to request the permits to. This is time consuming, creates uncertainty, and it is ultimately inefficient. It is a learning process not only for the regulatory bodies, but for every company participating within the market. “Historically, the government has been very slow in creating regulatory frameworks and today this cannot occur; the faster these regulations are issued, the better the industry will fare. Regulators are working really hard to solve issues and concerns; however, some go beyond their capabilities and must be addressed at a legislative level. For companies participating in Round One, a salient concern was the administrative rescission and if Mexico wishes to maximize revenues in hydrocarbons and see the Reform bear fruit, it must remove the requirement of administrative rescissions.”

Piedrant said the removal of obstacles like the administrative rescission is extremely complicated, so she suggested that the authorities should soften and clarify the terms. Then she asked the panelists about barriers they have identified. Morán said the processes could be improved by incorporating experts and technical advisors into the dialogue and implementing international standards. Piedrant pointed out the tribunals’ lack of experience with the new types of contracts, leading to a discussion on successful litigations of matters related to administrative rescissions. According to Morán, there are no legal precedents in Mexico for this issue, and Mexico should smooth out the barriers of entry for players who have decided to enter the bidding rounds if it wishes to compete against other attractive countries. Raul Romero claimed that layers have to support the tribunals in their learning process. “The lack of knowledge from behalf of the tribunals may be a barrier for obtaining financing because of the fear of the unknown. At the end of the day, our job is to support the authorities and tribunals in order to uphold transparency throughout.”

The conversation about the complexity of the framework for the upstream sector raised questions about the framework for midstream. Piedrant asked what should be done to reduce uncertainties and support the midstream sector. Romero noted that midstream has been dominated by natural gas and LP, and now it will include poly-ducts and a series of other goods. “The main task for this sector is to attract investment and the authorities must ensure they create the right investment conditions. It is crucial to have an efficient regulatory framework in order to develop strong economic models.” He also pointed out that CRE must enter the industry and learn how the operations of midstream work, and PEMEX is the one with the knowledge. “CFE and PEMEX have had control of natural gas in Mexico for some time and CRE must take this into account when regulating these two players,” he concluded.