Amendments to Mexico’s Power Industry Law Continue to Be Suspended

While the future of private investment in Mexico’s power industry remains uncertain, renewable energy investors should be aware of current proceedings regarding changes to the law.

Enforcement of the March 2021 legislative changes to Mexico’s Power Industry Law (the Amendments) is still suspended due to multiple amparo constitutional review proceedings pending before Mexican federal courts. Should the Amendments be declared constitutional, they will become immediately enforceable by Mexican authorities as they have already entered into force. Renewable energy investors in Mexico will then possibly face severe detriments. See our previous LawFlash, Renewable Energy Investors in Mexico Face Detrimental Energy Law Reform, for detailed information.

The latest developments on Mexico’s Power Industry Law reform can be summarized as follows:

• A number of companies have initiated amparo constitutional review procedures against the Amendments.
• The amparo procedures have resulted in two injunctions on enforcement of the Amendments issued by Mexican federal courts.
• On July 1, 2021, a specialized federal tribunal (Segundo Tribunal Colegiado en Materia Administrativa Especializado) lifted one of the two permanent federal injunctions in place against the Amendments.
• The decision to lift the injunction was based on the finding that the Amendments would only cause a detriment to the company asking for constitutional protection once the Amendments are actively enforced by Mexican authorities. That is, the specialized federal tribunal determined that the mere entering into force of the Amendments was considered insufficient to uphold the permanent injunction.
• Given that another permanent injunction is still pending with another specialized federal tribunal (Primer Tribunal Colegiado en Materia Administrativa Especializado), the enforcement of the Amendments is currently still suspended indefinitely.
• It is expected that the Mexican Supreme Court of Justice (Suprema Corte de Justicia de la Nación) ultimately will decide on the constitutionality of the Amendments as, in parallel with the amparo constitutional review procedures, there is a constitutional controversy action (controversia constitucional) pending against the Amendments before the Supreme Court since May 11, 2021.
• The constitutional controversy presented was initiated by the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica or COFECE). It is unclear when a decision on the constitutional controversy by the Supreme Court can be expected.

As of this date, there is consensus within the legal industry in Mexico that the odds are slightly in favor of private parties seeking the declaration of unconstitutionality of the Amendments, but there should only be cautious optimism due to the following developments.

First, President Lopez Obrador and his administration have criticized Mexico’s judicial system as a result of the halting of this administration’s projects based on constitutional review procedures. In April 2021, despite severe constitutional concerns, the Mexican Congress approved the extension of the term of Mexico Supreme Court Chief Justice Arturo Zaldivar. After significant pressure from the Mexican legal bar and the judiciary associations, the Supreme Court agreed to review the constitutionality of the chief justice’s term extension.

Second, the administration of President Lopez Obrador has also extended the suspension of all response terms for authorities in the energy sector, including the Ministry of Energy (SENER), Energy Regulatory Commission (CRE), and National Center for the Control of Electric Power (CENACE), citing COVID-19 health emergency conditions. These measures had and continue to have a paralyzing effect on all new permitting and permit modification applications, some of which have been without response for almost a year.

Third, President Lopez Obrador has announced that if the Amendments should be declared unconstitutional, he will implement new measures, including sponsoring legislative changes, to further pursue his agenda to benefit the state-owned utility company, Comisión Federal de Electricidad. Among those measures, President Lopez Obrador intends to propose a constitutional reform to specify that a stable operation of the power grid must prevail over free competition and free participation.

The president has stated that such stability of the power grid will only be achieved by strengthening the position of state-owned energy companies. While the president has in the last midterm elections in June 2021 lost the supermajority in Mexican Congress needed to make constitutional amendments on his own initiative, he can still pursue such amendments if approved by two-thirds of the lower (Cámara de Diputados) and upper (Cámara de Senadores) chambers of Congress.

Investors should continue to monitor any developments on the proposed Amendments and be ready to take action in order to effectively protect their rights and investments, including by means of investment arbitration.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: 

Houston
Humberto Padilla Gonzalez
John Crespo
Felipe Alice