Injunction issued on Mexico’s new natural gas strategy

Earlier this year, the Mexican Ministry of Energy (SENER) issued an official communication (SENER's Communication) addressed to the National Center of Natural Gas Control (CENAGAS) and the Energy Regulatory Commission (CRE), aimed at implementing a new policy that creates additional rules for the provision of natural gas transportation services by CENAGAS through the Mexican national transportation system known as SISTRANGAS.

As outlined in our recent publication on the matter, in summary, SENER's Communication:

1. Orders CENAGAS to implement a number of additional requirements when providing natural gas transportation services at SISTRANGAS' import points where a state's productive company (i.e. PEMEX or CFE) or any of its affiliates or subsidiaries holds reserved capacity in the US transportation systems upstream of such import points; and
2. "Invites" (exhorta) CRE to carry out, in its role as regulator, all necessary actions to cause all permit holders to comply with the new policy described in SENER's Communication, and to amend the terms and conditions of service applicable to SISTRANGAS to make them consistent with the new policy.

As a direct response to SENER's Communication, the Mexican Federal Economic Competition Commission (COFECE) issued a non-binding opinion advising against the implementation of SENER's Communication. COFECE reasons, among other arguments raised throughout its opinion, that:

1. SENER's Communication is contrary to the rules that protect the principles of open and not unduly discriminatory access to natural gas transportation services, as well as other free market and economic competition principles expressly protected by the Mexican Constitution and the Mexican Hydrocarbons Law.
2. The barrier of entry in the natural gas transportation market that would be created as a direct consequence of implementing SENER's Communication, would (i) likely lead to supply issues and increased prices for the end-user; (ii) "artificially strengthen" the State productive companies, to the detriment of the natural gas market in Mexico; and (iii) discourage investment in related projects and infrastructure.

COFECE's opinion was directly addressed to the heads of SENER, CRE and CENAGAS, urging them to (i) refrain from implementing SENER's Communication; and (ii) abide by the applicable legal principles of free market, open competition and open access.

While as noted COFECE's opinion is non-binding in nature, COFECE in its capacity as constitutionally-independent agency, also filed a federal constitutional control claim (controversia constitucional). COFECE's claim was mostly predicated on the same arguments raised under its opinion and, consistent with the Mexican rules of constitutional control procedure, COFECE petitioned for an injunction to be issued in order to prevent the application of SENER's Communication.

The claim brought by COFECE will be heard by Mexico's Supreme Court of Justice (SCJN). As part of the proceedings, earlier this month the SCJN granted the injunction requested by COFECE, thus suspending – with general effects – the application of SENER's Communication and any implementing actions for SENER, CRE and/or CENAGAS. Effectively, this means that until the merits of COFECE's constitutional claim are conclusively resolved, the revised natural gas strategy mandated by SENER's Communication cannot be implemented and no party (e.g. SISTRANGAS users or other natural gas permit holder) may be required to comply with the requirements of SENER's Communication.

SCJN expressly noted that the injunction was granted to maintain the status quo during the pendency of the claim and until a final resolution is issued, as allowing SENER's Communication to be implemented prior to ruling on its constitutionality may cause "irreparable harm" and/or materially affect the economic competition in Mexico, inter alia, due to the extensive requirements that SISTRANGAS users would be required to meet to comply with the new natural gas policy. In any case, SCJN also noted that granting the injunction does not prejudge on the constitutionality (or lack thereof) of SENER's Communication.

COFECE's constitutional claim marks the latest instance of COFECE strongly positioning against other controversial changes brought by the Mexican Government in the energy sector. You can read more about it here: New policy in Mexico puts dagger in private sector participation in the electricity sector, Mexico’s Federal Economic Competition Commission on the amendment to the CFE terms of legal separation, Mexican ISO prevents wind and solar projects from reaching commercial operation and Mexican Competition Commission criticizes actions against wind and solar projects.