New amendment to the Hydrocarbons Law regarding Asymmetric Regulation

On May 19, 2021, the Decree amending the Thirteenth Transitory Provision of the Hydrocarbons Law published in the Federal Official Gazette on August 11, 2014 (the Decree), was published in the Federal Official Gazette.

The Decree nullifies the effects of the authority granted to the Energy Regulatory Commission (CRE) to subject asymmetric regulation principles on the first-hand sales of hydrocarbons, petroleum products or petrochemicals and the commercialization carried out by persons controlled by Petróleos Mexicanos (PEMEX) or its subsidiary companies. On the other hand, the Decree states that the sales made by PEMEX, its productive subsidiary companies, or any legal entity on behalf of the Mexican State, shall be considered as commercialization and subject to the principles of generality and non-discrimination set forth in the Hydrocarbons Law and its regulations.

It is worth noting that, prior to the Decree:

• The CRE had the authority to tie first-hand sales to asymmetric regulation principles to limit PEMEX's dominant power in the markets while achieving greater participation of economic agents in benefit of the efficient and competitive development of the national markets. Under this scheme, the regulation of first-hand sales included, among others, the approval and issuance of general terms and conditions, and the methodology for the calculation of their prices, observing the standard practice in developed markets.
• The Hydrocarbons Law stated that prices should reflect, at least, the opportunity cost and the conditions and practices of competitiveness in the international market of such products.

Under the Decree, the legislators considered that such greater participation of economic agents has been achieved and that the efficient and competitive development of the markets has been favored; notwithstanding the fact that the authority with competence to determine that such conditions of competition were achieved is the Federal Economic Competition Commission (COFECE), and it has not made any statement yet.

Please bear in mind that pursuant to the Hydrocarbons Law, the Ministry of Energy (SENER) has the power to instruct—either directly or at the proposal of the National Hydrocarbons Commission and/or the COFECE—State productive companies, their subsidiaries and affiliates to undertake the necessary actions to guarantee that their activities and operations do not hinder competition and the efficient development of the markets, as well as the public policy in energy matters. This same provision requires that SENER's activities be oriented by national interests, such as the country's energy safety, sustainability and market diversification.

The Decree will become effective as of May 20, 2021, and, in addition to establishing that all provisions that oppose those of the Decree are repealed, it grants the CRE a term of 30 calendar days to annul the agreements, general administrative provisions, resolutions and guidelines related to the imposition of asymmetric regulations.

The foregoing may contribute to the consolidation of PEMEX and its subsidiary companies as the dominant players in the hydrocarbons market, to the detriment of the participants of the private sector.