“Widespread uncertainty affects energy companies in Mexico on a daily basis,” said David Enríquez, senior partner at Mexico City-based law firm Goodrich, Riquelme y Asociados. Mexico GPI of NGI. “Some companies don’t even know if they will continue to exist in the next few months or if they will have a license to continue operating, or if they will be able to pay employee salaries in six months or a year.”
He added: “Virtually all of them have some form of credit obligation to pay, and they don’t know at this time if they will be able to make their payments. There is enormous uncertainty in the industry. “
Enríquez is one of the most distinguished and recognized figures in the Mexican energy industry and is regularly ranked among the best lawyers in Latin America by the Legal 500, including for 2022. He has worked at Goodrich since 2000 and specializes in energy, infrastructure and maritime sectors, both from a transactional and regulatory point of view. His practice also includes commercial and investment arbitration related to these industries.
In addition to his work at Goodrich Riquelme, Enríquez is a member of the International Bar Association, the Institute for Energy Law and the Association of International Petroleum Negotiators. He was professor of law at the Instituto Tecnológico Autónomo de México (ITAM) and is the author of numerous articles and nine books on maritime law, international economic law and energy law.
Enríquez holds a Doctorate in Law from the Universidad Panamericana de Mexico, a Diploma in International Economic Policy from the London School of Economics, a Masters in Maritime Law from the University of Southampton in England and the ‘Instituto Europeo de Estudios Marítimos in Gijón, Spain and a bachelor’s degree from the Universidad Panamericana in Guadalajara.
Editor‘Note: NGI‘s Mexico Gas Price Index, a leader following reform of the Mexican natural gas market, offers the following column of questions and answers (Q&A) as part of a series of regular interviews with experts in the Mexican natural gas market. . Enríquez is the 71st expert to participate in the series.
NGI: What are you waiting for and what are your prospects for the Mexican energy sector in 2022?
Enriquez: The outlook for this year is truly characterized by pervasive uncertainty, virtually at every level of the industry. On the one hand, there is all the noise and uncertainty surrounding regulatory changes and legal issues that could arise as a result of those changes. At the same time, there is uncertainty and concern over the Supreme Court’s ruling on the Electricity Industry Law (LIE) just as a minister, José Fernando Franco González-Salas, has just left. the courtyard. It was hoped that the full court would vote on the constitutionality of the proposal in November before he left office, but for some reason – I would say a strange reason – that did not happen. It seemed like all the elements were in place for a vote to take place and it didn’t, possibly due to pressure from some type of outside factor. The fate of the bill will now fall to the new Supreme Court minister, Loretta Ortiz, who has been appointed by President López Obrador. So across the industry, and particularly in how the Supreme Court will proceed with the LIE, there is widespread uncertainty.
The point is that the LIE, which has been subjected to various legal injunctions and blocked by courts and magistrates in one form or another over the past two years, will now all be resolved by the Supreme Court ruling. The fate of repeated efforts to block elements of the proposed law, the constitutional controversies it provoked, and industry concerns will be decided by a general decision of the Supreme Court. It is therefore very important to see what Minister Ortiz is proposing in the coming months. I would say this is the first pillar of uncertainty.
NGI: I imagine that the electricity reform proposal is also a main element of uncertainty in the sector?
Enriquez: The proposal to reform the constitution as part of the electricity reform is of course the second pillar of uncertainty in the industry. As is known, the proposal has encountered opposition from various organizations, companies, NGOs and members of the industry, and is extremely controversial as it seeks to amend the constitution.
The uncertainty lies in how the proposal might be amended in order to gain approval. PRI members, for example, have not been consistent in how they might vote. Some said they would never vote to endorse the proposal, while others said they were open to debate. What I think is the trickiest, and where the uncertainty really lies, is that at the end of the day politicians want to have something that they can show they have accomplished, as if it s It was a price or a way to brag Horn. Even if it’s not really an accomplishment, politicians want something to validate their mandate.
What I think will happen is that it will not be a black and white question and I believe that changes will be made to the constitutional reform proposal. But I think these changes, instead of adding certainty to the proposal, will do the exact opposite. I think what the government is trying to do is a divisive rule, in that instead of having a big battle or a big debate it will look for small victories and try to convince some senators to reconsider their position.
I think they will do this by changing the text of the proposal to be more ambiguous so that it appears less controversial and controversial on paper. And, if they succeed in getting it through, the secondary laws, which will be structured later, will then allow Morena to implement the changes they want in the sector. Adopting an ambiguous text that reforms the constitution in 2022 could be devastating for the sector for the rest of the administration. While this year would generate uncertainty in the sector, the following years and the implementation of secondary laws could potentially be even more damaging to the industry.
NGI: Among your clients and the energy companies you work with, what do they think about the current state of the Mexican energy sector?
Enriquez: They are very worried and the generalized uncertainty impacts them on a daily basis. While you and I can identify the uncertainty in the industry, for some companies they don’t even know if they will continue to exist in the coming months. They do not know if they will have a license to continue operating or if they will be able to pay the salaries of the employees in six months or a year. Almost all of them have credit obligations owed, and they do not yet know whether they will be able to make their payments. Uncertainty abounds.
Beyond the electricity market, certain projects for petroleum product transport terminals, supply and storage terminals which are very advanced and have required significant investments are now facing radical changes in the rules of the game. And if you made a carefully calculated investment on the basis of a 20-year license that was granted, for example, the regulatory changes are now putting all of that in jeopardy. As a result, project donors may reconsider their support as the risk of default is much higher. Thus, the levels of uncertainty are enormous and anxiety reigns throughout the industry.
NGI: There have been blackouts and blackouts all over Mexico and obviously Texas during the winter months of 2021. Do you think Mexico, given the lack of transmission lines and the US dependence on natural gas, likely to experience more power outages in the next few months?
Enriquez: I think this is a problem with several factors. One of the problems is the lack of transmission lines, a serious problem that the government is not addressing. Transmission of electricity is a government obligation and the inability to distribute electricity efficiently puts sectors, such as export sectors, at risk if supply is limited. The same goes for industrial sectors in Mexico, such as the automotive industry, which have a very high demand for electricity in their production processes. Thus, if supply were affected, this would obviously lead to bottlenecks and would have an impact on the country’s overall economy.
If there is no way to meet all the electricity needs of Mexico’s productive sectors, then we are witnessing a kind of perfect storm of potential service and supply chain disruptions. It’s not specific to Mexico, but the lack of transmission in the country could really complicate the situation over the next few months if many feeding options are not available.