Mexico’s government has proposed legislation that would allow the energy ministry and energy regulatory commission (CRE) to more easily strip fuel market participants of their operating permits.
The move is the latest manifestation of the government’s rollback of a 2014 energy reform package that opened Mexico’s long-cloistered oil industry.
The bill, presented to congress last week, is likely to pass because president Manuel Andres Lopez Obrador’s Morena party holds the simple majority in the legislature required for approval.
Under the proposed legislation, an expanded group of holders of permits issued under the 2014 hydrocarbons law for fuel imports, exports, marketing, distribution, retail, transport and storage of fuels, crude and natural gas would be required to prove compliance with a minimum fuel storage policy. The existing law mandates that most participants have inventories for gasoline and diesel equivalent to five days of sales.
The government can currently sanction companies that do not comply with the storage policy but allows them to keep operating. Under this proposal, the permits would be revoked almost immediately. The proposal also expands this obligation to fuel transporters, while it currently only applies to fuel traders, importers, distributors and retailers.
The wording of the bill is ambiguous, as “all permits” could include crude and gas permits, while only gasoline, diesel and jet fuel have a stated minimum storage policy.
Because of the nature of the regulated activities, some existing permits would be unable to comply with the requirement, said Diego Campa, partner at Campa and Mendoza, a Mexico City-based law firm specialised in energy and natural resources.
As the bill is currently drafted, on the first day of the legislation’s approval, the energy authorities could revoke all permits from firms that are out of compliance. Under current requirements, some companies have already been struggling to comply with the minimum storage mandate because of ambiguities in existing regulations, and the government has also delayed permits to build new storage infrastructure.
One safe harbour for companies to provide proof of its storage could be to show storage credits bought from other companies, known as tickets. The bill does not indicate if that would be allowed.
The bill also does not address the current exemptions of certain permit holders from the storage mandate, in light of Mexico’s prohibition on retroactive application of laws.
For more information www.gob.mx/sre/en