Reform to Hydrocarbons Law Could Affect Investment Climate

The Mexican Institute of Finance Executives (IMEF) and the Federal Economic Competition Commission (COFECE) fear that the recently passed Hydrocarbons Law could further affect Mexico’s investment climate and increase fuel prices. The López Obrador administration heralds the reform as a crucial step in its efforts to rescue PEMEX.

The most important components of the reform are a mandatory minimum storage capacity of oil products for companies participating in the market, a ‘deny by default’ in regards to potential new permits for import, commercialization and distribution of oil products, the possibility for the government to revoke permits if they violate legal provisions or if companies are somehow involved in stealing or smuggling and the suspension of permits if they present an “imminent danger to national security, energy security or to the national economy.”

PRI Deputy and former Director of CFE Enrique Ochoa warned that the initiative is unconstitutional, something experts of various political directions agree. “Irrationality prevailed over reason. Here, they will have the votes but they are not thinking correctly,” he declared according to Forbes. As a result, the initiative might be cleared off the table by federal judges, something that already happened with the reform to the electricity industry introduced by the president and passed through Congress last month. The Supreme Court would issue a final verdict if the government presents an appeal.

Gerardo Fernández, Deputy of the Labor Party and an ally to the López Obrador administration, defended the initiative as a tool to bring order to Mexico’s fuel market.“[Opponents] say that they are concerned about the environment. None of them have come here to say that we should stop the sale of fossil fuels, the main contributor to pollution. Instead, they come to defend those in the business of selling fuels,” he stated, using the word “schizophrenics” to describe the opponents.

COFECE warned that the reform would generate legal uncertainty for participants involved in the hydrocarbons supply chain. It would furthermore allow arbitrary and unjustified restrictions to the products and services these participants can offer. Mexican consumers would be the victims when fuel prices increase as a result. Nevertheless, COFECE recognizes the government’s legitimate efforts to combat smuggling and theft of hydrocarbons. COFECE does not speak out against provisions allowing the government to revoke permits once it has been proven players are involved in illegitimate activities.

IMEF President Ángel García-Lascurain argued that the law’s aim to strengthen PEMEX also translates to a clear setback in free competition, which does not mean Mexico’s population would see lower fuel prices. Investment coming to the country could be strained further as well, reported El Economista.  

With 292 votes in favor, 153 against and 11 abstentions, Mexico’s Chamber of Deputies approved a notion reforming and adding new provisions to the hydrocarbons law on Apr. 14. On April 20, the Senate's commissions working on hydrocarbons approved the proposal as well.