The United States of America has requested dispute settlement negotiations with the Government of Mexico under Chapter 31 of the United States–Mexico–Canada Agreement (USMCA). The negotiations are linked to the new energy policy of Mexico implemented by the President of Mexico Mr. López Obrador (“AMLO”), specifically regarding the legal and administrative measures adopted in the energy industry during the administration of AMLO. As previously announced, the Mexican government has implemented measures to strengthen Mexican state-owned companies, particularly in the energy and natural gas sectors. The main beneficiaries of this new policy include the utility company, Comisión Federal de Electricidad (CFE), and the national oil and gas company Petroleos Mexicanos (Pemex).
Since October 2020, the US Government and Congress have repeatedly expressed concerns about the energy policy changes implemented by the AMLO administration and the negative effects on US investors, which violate the provisions of the USMCA. John Kerry, the special representative of the president of the United States for the climate, has visited Mexico three times in the last eight months to discuss the new energy policy and the transition of power in Mexico with the President of Mexico. However, no changes have been made, despite Kerry’s efforts and efforts from many congressional representatives expressing their concerns to current and former U.S. presidents.
The request for discussion covers four topics that argue that Mexico’s new energy policy is inconsistent with the USMCA, specifically provisions on Market Access, Investment, State-Owned Enterprises, Distribution and Administration .
1. Amendments to the Electricity Industry Law
In 2019 the Mexican Congress passed some changes to the Electricity Industry Law (“EIL”). One of the main changes in EIL was the change in the rules for dispatching the National Electricity system. According to EIL’s changes, Mexico’s independent regulatory system (CENACE) must now prioritize electricity from CFE power stations over electricity produced by private investors’ power stations, to no matter how clean and expensive they are. These measures prevent private investors from accessing the energy market and favor CFE over other players in the energy market.
2. Regulatory Impasse
The US government also considers that private companies are hindered from working in the energy sector in Mexico by delaying, denying or canceling the permit to generate electricity or any modification thereof. These measures have prevented private investors from (i) using renewable energy sources; (ii) importing and exporting fuel; (iii) operate fuel depots or (iv) construct and operate fuel sales centres.
3. Delay in the Requirement to Supply Ultra-Low Sulfur Diesel only for Pemex
In 2019, the Energy Regulatory Commission (“ERC”) only granted Pemex a five-year extension to the high sulfur demand bond for diesel vehicles. On the same subject : Departmental Press Briefing – July 19, 2022 – United States Department of State.
4. Natural Gas Transportation Policy
On June 13, 2022 the Ministry of Energy (ME) sent to the ERC and the Independent Operator of the Natural Gas Administration (CENAGAS) an official communication encouraging the ERC to change the terms and conditions of the independent administration operating in the pipeline system national joint venture (SISTRANGAS) in order to force SISTRANGAS users to buy natural gas from CFE or PEMEX in the natural gas market. On the same subject : The US Air Travel Industry Wounds Itself.
5. State vs State Dispute Mechanism under the USMCA
Pursuant to Chapter 31 of the USMCA, the parties shall enter into the negotiation process 30 days after the request is issued. The interview process will be confidential. If the Parties fail to resolve the dispute within 75 days of the request for mediation, the U. Read also : Concacaf W: Haiti shocks Mexico with 3-0 loss, USA beats Jamaica and qualifies for World Cup – Equalizer Soccer.S. Government you can request the creation of a group. The panel will issue a final report on the dispute approximately 200 days after the request is made.
If the Government of the United States wins the dispute, the Government of Mexico will be forced to disregard the changes passed by Congress to the Law of the Electricity Industry, forcing the ERC to respect the current Energy Reform. Otherwise, the U.S. Government You can suspend the application in Mexico of the benefits of disagreement or cancellation or damage until the Parties agree on a solution to the dispute.
6. Investment Arbitration for Private Investors
Regardless of the negotiation process initiated by the U.S. Government, this is a State vs. State dispute. The Negotiation Process will not hinder or prevent private investors from launching an investment dispute against the Mexican government because of AMLO’s new energy policy. As you may recall, private investors holding power generation permits, gas station permits, and/or oil import/export permits are protected by the USMCA/NAFTA or CPTPP, therefore, they have the right to file an investment dispute against the Mexican government.
