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SCJN ratifies the validity of the Hydrocarbons Law Reform - AI 91/2021  

May 17, 2024

Galicia Abogados - In session of 29 April 2024, the Plenary of the Supreme Court of Justice of the Nation (the "Plenary of the SCJN") resolved the action of unconstitutionality 91/2021, recognising the validity of articles 51, section III, 53, second paragraph, 57 and 59 Bis of the Hydrocarbons Law (the "LH Reform" or "Decree"), as amended by the Decree of the Supreme Court of Justice of the Nation (the "Decree"), 57 and 59 Bis of the Hydrocarbons Law (the "LH Reform" or the "Decree"), amended and added by decree published on 4 May 2021 in the Official Gazette of the Federation (the "DOF"), as well as the fourth and sixth transitory articles of said Decree.

Thus, the Plenary of the SCJN recognised the validity of the LH Reform, based on the following reasoning:

With regards to the sixth transitory article of the LH Reform, which provides that upon the entry into force of the Decree permits will be revoked in respect of which the  authority verifies that the permit holders do not comply with the requirements set out in the aforementioned law or that the aforementioned law or that they infringe its provisions, the Plenary of the SCJN pointed out that this article does not violate the principle of legal certainty, given that prior to the LH Reform, there was already the LH Reform, there was already a procedure to revoke permits when a provision is infringed, the rule under analysis only clarified what was provided for in the regulatory system.
It also ruled that it did not violate the principle of legality, since the penalties to be imposed on permit holders in the event of a breach of any provision will be the cause for their revocation, and therefore no new grounds for revocation are incorporated, since it is only emphasised over compliance with what is already indicated in the applicable regulations.

Finally, the SCJN Plenary considered that there is no violation of the principles of due process and proportionality of sanctions, since the revocation is a legal act that annuls a permit due to non-compliance with the requirements of the law. Therefore, the non-compliance or violation of the relevant provisions must have been verified by the Ministry of Energy (the "SENER") or the Energy Regulatory Commission (the "CRE"), prior to the procedure that concludes with the revocation resolution. In other words, the revocation is not automatic, but is in accordance with the applicable provisions of the Hydrocarbons Law and the Federal Law of Administrative Procedure.

With regard to articles 51, section III and the fourth transitory section of the LH Reform which provide for the requirement to comply with the storage capacity established by the SENER, the Plenary of the SCJN considered that the Senate’s considerations that these articles violate the principle of non-retroactivity are unfounded, since the obligations to comply with the storage capacity already existed, and in accordance with article 80, section II, of the Hydrocarbons Law, SENER was required to issue general provisions establishing the measures to be complied with by the licensees, in order to comply with the  terms of minimum storage levels. Thus, in compliance with the aforementioned, on 12 December 2017, in the DOF, the "Acuerdo de Acuerdo de la Ley de Hidrocarburos" was published in the Official Gazette.
Therefore, the provisions of the Hydrocarbons Law prior to its reform do not constitute an acquired right in favour of private individuals, since the State always retains the possibility to carry out the reforms it deems necessary.

In congruence with the above, the Plenary of the SCJN specified that with regard to the fourth transitory provision under analysis, which in its last part establishes: "in accordance with the applicable legal provisions", refers precisely to those provisions that are applicable, in accordance with the respective administrative procedure, in the event of non-compliance with the corresponding storage capacity.

Finally, the Plenary of the SCJN analysed articles 51, section III, 53, second paragraph, 57, 59 BIS, fourth and sixth transitional paragraphs of the LH Reform that modified the way in which Petróleos Mexicanos participates in the hydrocarbons market, and concluded that the principle of free competition and concurrence is not violated, since competition is not violated as long as:

- Articles 51, section III, and the fourth transitional provision of the LH Reform, do not violate the provisions of Article 28 of the Constitution, since these provisions do not establish barriers to entry for new establish barriers to entry for new participants, because they do not generate a visible and forceful adverse effect on the market, since prior to the LH Reform, there were already rules issued by SENER regarding storage capacity, and it is not clear from the arguments that the Senate had indicated how the competition of other participants could be prevented.

- With regard to article 53, second paragraph of the LH Reform, the SCJN Plenary indicated that the precept that provided for the afirmativa ficta, is substituted by a negative ficta, as a consequence of the authority’s failure to resolve the request for the transfer of permits granted to private individuals, as it is in accordance with the argumentation that pursues a valid purpose, consisting in not authorising, because of the passage of time, the transfer of the permit without the authority having verified and ascertained that the assignor or permit holder complies with all the legal requirements to do so.

Furthermore, it points out that the affirmative ficta method cannot be considered as an unmodifiable prerogative in the matter, as it can indeed be modified according to the public interest.
The fact that the previous legislation understood it in this way does not mean that it constitutes an immovable acquired right, but rather that it is a mere expectation for those who were given it during its validity.

The foregoing takes into consideration that the legislator has the power to modify the rules of the procedure for the transfer of permits, according to what it considers most beneficial for the hydrocarbon sector.

With respect to articles 57 and 59 Bis of the LH Reform, which provide for the figure of
temporary occupation, intervention and suspension of permits, for those cases in which an imminent danger to national security, energy security or the national security, energy security or the national economy, the Plenary of the SCJN points out that these do not have a confiscatory character, since, contrary to what is argued, the suspension does not have characteristics such as to imply the appropriation of the licensees’ patrimony, it is simply a legally established procedure for the authority to temporarily invalidate a previously granted permit.

Nor are they in violation of the principle of legal certainty and lack of legal certainty by violating the rules of Article 28 of the Constitution, since the need to regulate more effectively the legal acts related to the operation of this area implies not only the sector, but also a broader regulation, given its relevance and the nature of its activities, allowing third parties to participate in certain activities other than exploration and extraction, such as storage, transport and distribution of some of the hydrocarbons and petroleum products, so authorisations have to be subject to the public supervisory powers of the SENER and the CRE.

Thus, the incorporation of the figure of suspension allows, at a certain point in time, to paralyse the the operation when there is an imminent danger to national security, energy security or to the national security, energy security or the national economy, until a final decision is reached; therefore, it is not considered to be a violation of legal of legal certainty insofar as any cause will always be justified in order to be legally regulated. In any case, it will be a violation of the principles of legality to give rise to an adequate defence and not to consider that the law itself already generates these conditions.

Now, with respect to the second paragraph of article 57 of the LH Reform, which
eliminated the possibility for the authority to hire third parties with technical capacity to take charge in cases in which it intervenes, occupies or suspends the activities of the permit holders, the SCJN concludes that it does not grant unequal treatment because it is a different case only for specific situations, which does not violate a principle of free competition.

In general terms, 8 of the members of the SCJN Plenary voted in favour of the proposal to recognise the validity of the LH Reform, except in relation to articles 57 and 59 BIS, where there is a majority of 7 votes.

In this sense, although each individual may file an amparo lawsuit once the authority applies each article individually, it is certain that, as a result of the SCJN’s ruling, it is expected that the amparo will ultimately be denied to the companies.

Thus, in each case, it will be necessary to analyse whether, instead of fighting the constitutionality of the provisions that are the object of the unconstitutionality action in question, the legality of the corresponding act of authority should be challenged.

Finally, with regard to the reform of the thirteenth transitory article of the LH Reform (asymmetrical regulation), through which said regulation had been eliminated by considering that a mature market had already been reached in terms of petroleum products and hydrocarbons, in a previous amparo trial, the unconstitutionality of said article had already been declared with general effects, and even the CRE had already left without effects the agreement A/015/2021 through the different agreement A/029/2023, so this asymmetric regulation is still in force.

About Galicia Abogados:
Galicia is a leading independent firm in the Mexican market with broad international reach through its alliances and network in Europe, Latin America, the United States and Asia.

Galicia is ranked as the leading law firm in Mexico by renowned international publications such as Chambers and Partners, Latin Lawyer, The Legal 500, LatinFinance, IJGlobal, IFLR1000, International Tax Review/World Tax, Global Competition Review and Who’s Who Legal.

This document is a summary for disclosure purposes only. It does not constitute an opinion and may not be used or quoted without prior written permission. Galicia assumes no responsibility for the content, scope or use of this document. For any comments regarding this document, please contact any partner of Galicia Abogados.


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