Recent injunctions obtained by private energy companies against the Mexican government set an important precedent, but these legal victories will not likely solve the regulatory paralysis in the country’s downstream market, legal sources have told OPIS.
Lower courts permanently suspended the latest fuel import permit rules from Mexico’s Energy Department (SENER) this week and ordered that the country’s Energy Regulatory Commission (CRE) reinstate the original time periods for permit applications in the power sector. “Winning all these juridical battels won’t allow us to win the full war,” said Marcial Diaz, directing partner of Mexico City-based consulting firm Lexoil, told OPIS.
The regulatory paralysis will not likely be resolved unless President Andres Manuel Lopez Obrador’s administration changes its perspective on private energy investments or his term ends, said Bernardo Cortez, a partner with Mexico City-based legal firm Dentons Lopez Velarde. Both lawyers said the paralysis would continue as both CRE and SENER can exercise discretion on the approval or rejection of energy permits.
“These injunctions are putting a check on the government in this energy chessboard…. However, they aren’t the checkmate needed to allow free market participation,” Cortez added. Companies still interested in investing in Mexico could fight permit rejections from SENER and CRE in administrative courts. However, these processes will be lengthy, up to 16 months, added Cortez. This legal move could be used by marketers investing in new storage facilities and import facilities and require 20-year permits to bring fuel into Mexico, Cortez said. He added that neither he nor any of his clients have heard of any company that has fought against SENER or CRE in administrative courts to secure the permits needed to unlock their projects, he added.
“Even if you have an injunction against CRE, the regulatory body could take the time to analyze your permit request to end rejecting it finally,” Diaz said. Recent injunctions obtained by the private sector set important precedents. However, these victories alone will not solve the obstacles the energy industry faces in Mexico, he added. Even if an opposition coalition wins the upcoming midterm elections and assumes control of the lower congressional chamber, it will be difficult to set additional checks and balances on CRE and SENER’s discretional permit approval via legislative changes, Cortez said.
From a legislative perspective, Lopez Obrador’s Morena party and its allies still control the Senate chamber, preventing a winning coalition of opposition parties from implementing its political agenda, Cortez said. “Under this scenario, opposition parties will try to negotiate to reach a consensus with Morena. However, there is no certainty this scenario would end the regulatory obstacles companies face today,” he added.