MEXICO Trends and Developments Contributed by: Carlos de Maria y Campos, Francisco Fernández Cueto, Antonio Borja and Eduardo García Travesi, Galicia Abogados
Introduction With the start of President Claudia Sheinbaum’s administration, Mexico has undergone a compre- hensive overhaul of its energy regulation. The pro- cess began with a constitutional reform approved at the end of 2024, which established a new industry model, and was followed by new laws and regulations designed to drive the development of power genera- tion projects and oil and gas contracts. The industry now stands on the brink of revival and modernisation. Mexico’s Energy Sector at a Turning Point: Oil and Gas, and Power Reforms This article outlines the following. • The structure and guiding principles of the new regulatory framework for Mexico’s power and oil and gas sectors. • The redefined role of the state-owned energy utili- ties, Petróleos Mexicanos (PEMEX) and Comisión Federal de Electricidad (CFE). • The operational and planning mechanisms that will shape how projects will be developed and dis- patched. • The schemes and contractual frameworks designed that enable and encourage private invest- ment under the new industry model. • The policy instruments and investment pathways that will define future opportunities. Constitutional Reform A new “collaborative” model The 2024 reform is founded on joint participation between the Mexican state and private investors, acknowledging the importance of their respective contributions to the development of a functional and efficient energy system – one that is too costly and complex to be undertaken solely by the Mexican state. This new approach to energy sector regulation stems from a profound shift in ideological principles that have long defined this highly polarised industry. A decades-long evolution – from a state monopoly to a fully liberalised market, and through the government’s efforts to regain control and participation in the market and the judicialisation of the sector – leads Mexico to a balanced approach that preserves state planning
and participation while leveraging private investment and expertise. Critical situation in the sector As the pendulum effect swung back in the evolution of Mexico’s energy sector, the administration of former President Andrés Manuel López Obrador, driven by a state-controlled monopoly vision, waged an aggres- sive campaign against private investors and projects. This clash paralysed the development of the energy industry for more than six years. Consequently, power transmission and distribution infrastructure deterio- rated, generation capacity failed to expand adequate- ly, and hydrocarbon production and growth on new developments declined, leaving the country’s energy sector in critical condition. State-owned entities: social function and preferential treatment The recent overhaul of energy regulation seeks to grant state-owned entities PEMEX and CFE a broader social role focused on addressing the needs of the population. To support this mandate: • the Federal Constitution grants CFE exclusive rights over certain power-related activities (power transmission and distribution) and a preferential treatment in others (power generation and com- mercialisation) where private investors may partici- pate subject to CFE’s preferential treatment; and • PEMEX and CFE are exempt from antitrust regula- tions. While these changes strengthen the position of PEMEX and CFE, inadequate regulation could discourage pri- vate investment by creating an uneven playing field. Compulsory/binding planning To exercise strategic control over the industry more effectively, the new energy regulation links the devel- opment of new projects and infrastructure to a stricter planning process, known as “Compulsory/Binding Planning”. Under this framework, the Mexican State: • identifies system needs and available resources; • prioritises state participation in expansion; and
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