Horacio de Uriarte
Partner and Head of the Energy and Infrastructure Practice
Mijares, Angoitia, Cortes y Fuentes
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Insight

How to Improve Contracting Models

Wed, 01/22/2014 - 14:46

“Our firm has been around since the opening of the natural gas sector, thus we have seen entire generations of contracts,” says Horacio de Uriarte, Partner and Head of the Energy and Infrastructure Practice of Mijares, Angoitia, Cortes y Fuentes. Its practice started nine years ago when the firm’s founders saw opportunities in the opening up of the natural gas sector to private investment. Back then, recalls De Uriarte, CFE started a very ambitious project to sponsor the first privately owned pipeline to distribute natural gas from Ciudad PEMEX in Tabasco. The idea was to provide natural gas to CFE’s existing power facilities in Campeche, which did not have any access to natural gas at the time. The firm acted as a counselor for this project. Since then it has become deeply involved in natural gas pipelines, and works for two top-tier companies involved in these activities: GDF Suez and TransCanada. The latter is currently building three privately owned, open access pipelines, awarded and sponsored by CFE. One of these is a 310km pipeline that will connect the LNG terminal near Manzanillo on the Pacific coast to Guadalajara based on a 25-year contract with CFE. The 30-inch diameter pipeline is capable of the bidirectional transportation of 320mcf/d of natural gas. In addition, Mijares, Angoitia, Cortes y Fuentes is involved in the expansion of the Tamazunchale pipeline, which connects PEMEX’s pipeline in Naranjo, Veracruz, to a power generating facility near Tamazunchale in San Luis Potosi. The expansion project will extend the pipeline westward over the Sierra Madre mountain range to serve densely populated settlements surrounding Mexico City.

De Uriarte compares the realities of working with CFE and PEMEX. “CFE is a larger consumer than PEMEX and rules the roost as an important sponsor for private pipelines and LNG terminals. Clients that hold contracts with CFE rarely go to arbitration, since every agreement with CFE is subject to arbitration and the state-owned company plays by the book in this case. Sometimes the utility company will not want to make a decision and the other party has to take the matter to arbitration. When this happens, CFE will honor the arbitrators’ final ruling,” he says. “On the other hand, PEMEX is more difficult to deal with due to its size and decentralized nature. While CFE does not have massive staff rotation, PEMEX sees regular staff changes at every level, leading contract disputes to have unpredictable resolutions. Regardless, the fact that these two state companies are open to arbitration makes investors feel comfortable.”