EconomyFinancialT-MEC: Mexico plays the dream of energy sovereignty in...

T-MEC: Mexico plays the dream of energy sovereignty in the consultations

The first term has already been fulfilled : the first 75 days established in the Treaty between Mexico, the United States and Canada (T-MEC) to have a result of the dispute resolution consultations initiated by the two main partners of Mexico has arrived this Monday. The period is not definitive: the parties can extend the talks for as long as they consider necessary , but if an agreement is not reached –something that is still in suspense–, a panel will issue a ruling that will be definitive for the government’s energy policy worker.

Chapter 8, which, according to President López Obrador, protects the country’s freedom to change the rules in the energy market, has been dismissed by specialized lawyers as a viable resource to defend the regulations promoted by the presidency. The paragraphs of that chapter only have scope in the hydrocarbon exploration and production market, which neither of the parties has included in their claims.

The United States and Canada, jurists also say, cannot demand to modify Mexican laws because they would be violating the autonomy of the Mexican government, but what was agreed in the T-MEC is enough to ask the federal administration to withdraw what goes against the agreement international, especially that related to benefiting the two state companies, CFE and Pemex.

Be that as it may, analysts say, Mexico will not be able to continue with the implementation of the regulation that it has put in place so far.

“[Mexico] would have to commit to promoting a more predictable legal framework. Practically to comply with what they offered with the energy reform and that everything be more transparent in front of the sector”, says Francisco Franco, a lawyer specializing in dispute resolution at Baker McKenzie.

The main complaints of the US side are the lack of transparency in the changes, that these have not been predictable and that their investors have not been given the same treatment as the two Mexican state companies, one of the main points that they violate the trade agreement. “Mexico is not administering its laws in a consistent, impartial and reasonable manner,” says the letter issued by the US government last July.

controversial issues

The main reason for the consultations is the change made by the Mexican government to the Electricity Industry Law (LIE) in 2021, which was partially invalidated by the Supreme Court of Justice last April and which remains suspended, for now, due to a hundred general suspensions granted by judges to companies and environmental organizations. In their respective letters, Canada and the United States place as the first point of disagreement the new order of dispatch that promotes the legislation to upload first to the system the electricity generated by the CFE plants. The Court did not declare this change constitutional, but neither was the majority reached for this point to be expelled from the legal order.

This is the first point, say the lawyers, that should be changed by the Mexican government, in order to continue with the order established in the secondary reforms of the constitutional change of 2013 and that they say priority should be given to electricity from plants with minors. variable costs, which turn out to be the wind and solar plants that, for the most part, belong to private parties.

The Mexican government has shown no signs of wanting to modify this point. This modification has not legally entered into force, but in practice they have inhibited the entry into operations of plants already built and the use of the Mexican state-owned plants has increased. “Although the decree to reform the LIE is currently suspended due to several injunctions issued by Mexican courts, the Mexican government has continued to pursue the objectives of increasing CFE’s market share to the detriment of private producers through various administrative measures. Canada says in the consultation request letter.

As part of the agreement, the jurists say, the Mexican side will be forced to withdraw from this point. “There would have to be a law initiative, from the same executive, to say: ‘everything that had been said about the office, now goes backwards,’ says David Enriquez, of the firm Goodrich Riquelme y Asociados.

The Canadian side has also brought up a 2019 regulation, in which the way in which Clean Energy Certificates are issued is modified so that the old plants of the state-owned CFE have access to this mechanism that was designed to encourage the creation of new renewable plants. “What is curious about the United States consultation is that it is protecting its investors, but Canada’s is focused on also protecting the environment and that gives another layer of complexity to the issue, and will make it more complex to resolve” says Julia González Romero, from the González Calvillo office.

Statements on the direction of the consultations have been zero so far. But the Mexican government, the lawyers say, has already given some signs of giving in to pressure from its trading partners or, at least, of seeking to reconcile on some points. Just last Thursday, the Energy Regulatory Commission (CRE), the electricity market regulator, approved 283 projects, after months in which it did not rule on it.

The United States and Canada added as a second point of complaint the actions of the Mexican regulator, the omission to grant new permits and the approvals in favor of CFE and Pemex.

“There is a high probability that Mexico will be given more time, there are some expressions of good faith and that can open the door to having more time. But the claim is very clear, the regulatory portions that go against giving equal treatment to investors must be changed,” explains Enriquez.

The United States also put two other regulatory changes on the table: one promoted by the Ministry of Energy so that the National Center for Natural Gas Control (Cenagas) will limit the importation of gas that has not been purchased from one of the two Mexican state companies and one extension granted by the CRE exclusively to Pemex to postpone until 2025 its obligation to supply low-sulfur diesel. The first is suspended by decision of some courts specialized in competition and by a ruling of the Court in favor of an appeal promoted by the Federal Commission of Economic Competition. The second is still running and the regulator has shown no signs of changing.

“The ideal would be to repeal [the regulations] or seek a balance where investors are not harmed, the ideal would be to repeal,” Franco explains. “There is nothing left but to give in and that is what is going to happen.”

Lawyers in the sector already anticipate that Mexico will have to give in at some point, either during the consultation period or by order of the resolution panel – which would be formed if no agreement is reached between the partners. If it comes to the latter, specialists say that the arguments of the United States and Canada are stronger than those of the Mexican side.

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