Proposed Electricity Reform Includes Oil & Gas Items

President López Obrador’s latest proposal for an “electricity reform” submitted to congress last Friday includes a number of impactful changes to the oil and gas sector.

This latest proposal has been presented by the president as an attempt to strengthen CFE by granting it a larger degree of control over the electricity market, with the intention of lowering energy prices. However, the president has made no mention of additional items contained within the text of the proposal that appear to address the public administration of the oil and gas industry. While there are a number of significant overlaps between the power generation segment and the downstream oil and gas segment, some of the proposals bear no relation whatsoever to the question of electricity, which make them odd inclusions in a bill proposal promoted as an “electricity reform”.

The most significant changes can be found in the third article of the proposal, which reads as follows: “The coordinated regulatory bodies on the matter of energy CRE and CNH will be suppressed. Their structure and responsibilities will be incorporated into SENER.” This is the only statement in the entire text of the proposal, published by the president as a “decree”, which mentions the CNH, so no further detail is given regarding how exactly SENER would incorporate the responsibilities and functions of CNH. Furthermore, no explanation is given regarding the nature of the connection between CNH, a commission dedicated entirely to the management of geologic resources for upstream oil and gas exploitation, and any kind of electrical generation or transmission. The only implied connection is that CNH, like CRE, is a “coordinated regulatory bodies on the matter of energy” (they are both, after all, technically commissions), and, as such, is presumably subject to be absorbed by SENER. The “suppression” of CNH would have enormous implications for the sector; just for starters, the commission’s independent nature grants legal certainty to upstream operators currently producing thousands of barrels.  

This is, admittedly, not the only part of this proposal not concerned directly with electricity. Another section of the bill calls for an end to all mining concessions of lithium. Lithium is the most important part of all battery manufacturing and, therefore, the development of all energy storage infrastructure, so it does have a connection with electricity. However, the mining of lithium (or any other mineral, for that matter) has never been an economic activity that has fallen under the purview of CFE or any public organism even close to that institution.