Juan Carlos Machorro
Partner
Santamarina + Steta
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Insight

Rule of Law and Transparency Are Crucial

Wed, 01/21/2015 - 11:53

Years before the Energy Reform was implemented, oil and gas companies were already preparing to enter this longclosed market, while leading law firms were preparing to offer the most competitive services in order to aid clients during the bidding process. One such firm is Santamarina y Steta, which has a specialist energy practice and offices in Mexico City, Monterrey, Tijuana, and Queretaro. “Santamarina y Steta is one of the few law firms in Mexico that offers its services as a one-stop shop and has been preparing itself for the Energy Reform over the past four years,” says Juan Carlos Machorro, Partner at Santamarina y Steta. He explains that his firm was among the three finalists that bid to write the model for profit sharing, production sharing, services, and licensing contracts for SENER following the Energy Reform. Although this honor was finally awarded to Curtis, Mallet-Prevost, Colt & Mosle, being considered for the task reveals Santamarina y Steta’s influence within the national energy sphere. This is impressive considering that the firm has been involved in the oil and gas industry for a mere four years, mostly assisting service providers working with PEMEX. In fact, the firm has never worked with PEMEX directly but has participated in a case of arbitration against the NOC. While it was disappointed not to win the opportunity to support SENER in the drafting of the contracts, this meant that the firm could offer its services to companies participating in the bidding process for Round One.

During bidding rounds, the firm’s work is to revise the bidding rules. “The key to successfully going through the process is to thoroughly prepare the paperwork needed and then combine technical capability with a competitive economic proposal,” says Machorro. “Tender processes should now show more flexibility than they used to. The Energy Reform, coupled with the country’s new anti-corruption legislation, is also meant to make the processes more transparent. We do believe that the new legal framework allows participants to enjoy a flexible, transparent, friendly, and open market-oriented process”. Machorro highlights the fact that the drop in the oil price has made the licensing rounds less appealing for participants. “The best thing to do is to set up an appealing and well-structured legal framework that will encourage players to come.” For now, Machorro awaits the release of the contracts, which he expects to take some time. “I do not think they will be able to come up with the final versions before the end of 2015,” states Machorro. “However, this will allow SENER to create a good contract that reflects the market standards.” He would even advocate for a consultation round in which the document is presented to key industry players which could then provide feedback for improvement, although he acknowledges that this could add several months to the entire process. “SENER would be wise not to drag this out too much as companies are already anxious to know the precise and full details of the contracts for the much awaited projects in Mexico’s oil and gas industry.”

Santamarina y Steta is keen to see authorities guarantee the rule of law and transparency in the tender processes, including the implementation of strict anti-corruption measures. “Mexico is facing a difficult political time but I am confident that legal progress stemming from the reforms will be properly done. Investors will find the necessary confidence to protect their investments, regardless of the political environment,” he states. Machorro trusts fully in the institutions handling the implementation of the Energy Reform and is certain that they will be able to manage the political situation associated with such an ambitious plan. “The most difficult times, from a legislative perspective, were when the Constitution was amended and the secondary laws were passed. Now that we have moved beyond these particularly challenging moments, it is just a matter of implementing the Energy Reform,” he says.

As for the firm’s future, Santamarina y Steta will continue building its practice as an active participant in the development of the country’s oil and gas industry, as well as the development of the country’s economy in general. “We are convinced that the Energy Reform is comparable to the enactment of NAFTA 20 years ago, which was the most important economic phenomenon in recent Mexican history. It will hopefully reap investment in the range of US$30-40 billion annually,” Machorro states.