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Mexican lawmakers weaken energy reforms as bill is waved through

Mexico’s lower house of Congress has approved a hydrocarbon law that undoes some of the market-opening measures included in the country’s 2013-2014 energy reforms, reinforcing the dominance of state-run Pemex in the downstream sector.

The government-backed bill repeals provisions that compel market regulator CRE to actively encourage the presence of private sector companies in the retail market for fuels.

The bill will remove CRE powers to constrain Pemex’s powers to set fuel prices or establish discounts for private players to use Pemex infrastructure.

Lawmakers have justified the bill on the basis that private companies enjoy an adequate market share, and no longer need to have their presence promoted.

Bill set for Senate
The new bill, which was approved by a margin of 301 to 147, will now go to the Senate.

It forms part of a wider package, including a measure that will endow officials with discretionary powers to rescind permits that were awarded to private companies in the downstream and midstream sectors when it considers there are risks to national and energy security.

The legislation is seen as the latest move by the administration of President Andres Manuel Lopez Obrador to reinforce the dominant position of Pemex.

Mexico’s anti-trust watchdog COFECE recently stated that Pemex supplied 83% of wholesale gasoline market in 2020 and 73% of the diesel market, and warned that revoking measures designed to level the playing field would be premature.

Before the 2013-2014 reforms, state-run Pemex enjoyed a monopoly over almost the entire Mexican oil and gas sector.

Resource nationalism
In the Upstream sector, Lopez Obrador has promised to respect the 107 contracts that were awarded between 2014 and 2018, but he has halted licensing rounds and farm-in opportunities involving Pemex assets.

Risk consultancy Eurasia Group said in a research note: “One of Lopez Obrador’s main goals is to strengthen Pemex, and he always saw the opening as a risk to its power.

“Like in the electricity sector, the administration first attempted regulatory changes that were stopped by the courts, so is moving up the legal chain to circumvent obstacles.

“It is likely that the new hydrocarbons law will also likely face legal challenges, potentially delaying implementation.”

Amlo assurances
The 22 companies present in the Mexican upstream sector have taken heart from Lopez Obrador — commonly referred to as Amlo — consistently offering reassurances that he will respect contracts signed before he took office in 2018.

Read full article at Upstream Energy Explored