(Argus, 15.Sep.2020) — Mexico’s ruling Morena party presented a constitutional reform proposal that would roll back the historic 2014 energy reform and seek to rescind all contracts awarded to date.
“The proposal seeks to reinstate the wording prior to the energy reform and without a doubt opens the door to an enormous conflict with the contract holders,” energy lawyer Luis Miguel Labardini said.
The bill — that legislator Daniel Gutierrez presented yesterday in the lower house — seeks to reform articles 25, 27 and 28 of the constitution that were amended in 2014 to allow private participation in hydrocarbon production and exploration as well as the refined products sector.
“No concessions or contracts will be awarded for oil, solid, liquid or gaseous [hydrocarbons], nor will any already awarded continue to exist,” states the bill.
The bill also reserves electricity generation, distribution and transmission exclusively for the state. The 2014 energy reform opened power generation and distribution activities to the private sector through three long-term power auctions.
President Andres Manuel Lopez Obrador said last month that his government would seek to roll back the energy reform but he has consistently pledged to honor contracts awarded in the three upstream auction rounds and long-term power auctions.
Oil regulator CNH has overseen three upstream auctions since 2014, with $40.7bn in approved investments across 111 contracts to date.
“Seven years on, the results of the privatizing energy reform have been the opposite of what was planned,” states the bill.
Reasons for the current reform include the failure of the 2014 reform to increase crude output and the ballooning of Pemex’s debt to $105bn from the $56bn in March 2012, “placing the company on the verge of financial collapse.”
Private participation has not helped Pemex to increase crude production nor has it resulted in lower fuel prices, the bill says.
A constitutional reform requires a two-thirds majority in both the lower and upper house as well as a simple majority in state legislatures. Amendments to general laws require only a simple majority in the federal legislature.
Mid-term elections coming next summer could either increase or decrease Morena’s chances of pushing through such reforms by changing the balance of power in congress. Morena now holds slightly less than a two-thirds majority in both houses, but has allied parties that could vote along its lines.
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By Rebecca Conan
