The Rule of Law: A Premise for the Energy Reform Josefina Cortés Campos 1

DISCUSSION PLAN FIRST PART. A VERY SHORT DESCRIPTION OF THE MEXICAN CONTEXT. COMPELLING FACTS AND SOME PROBLEMS TO DEAL WITH WHEN THE RULE OF LAW COMES INTO SCENE. SECOND PART. SOME EXAMPLES OF REGULATORY RISK IN THE FIELD OF EXPLORATION AND EXTRACTION (HYDROCARBONS LAW). FINAL REMARKS. 2

MEXICAN REFORMS AND LEGAL EDUCATION: REGULATION OF HIDROCARBONS TRAINING COURSE 20 MONTHS = 11 STRUCTURAL REFORMS: TELECOMMUNICATIONS, ANTITRUST, ENERGY 20 MONTHS = 12 STRUCTURAL REFORMS TELECOMMUNICATIONS, ANTITRUST, ENERGY 3

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MEXICO: A SHORT PROFILE Mexico is the second largest economy in Latina America. From an institutional-social perspective Mexico is still a young democracy (2000) that works over the basis of a weak institutional framework. World development indicatorshttp://data.worldbank.org/country/mexico?display=graphhttp://data.worldbank.org/country/mexico?display=graph The Rule of Law 5

THE WJP RULE OF LAW INDEX (2014) eport.pdf 6

THE RULE OF LAW (WJP´S DEFINITION) 7 _2014_report.pdf

IMPORTANT CASES 8 AYOTZINAPA THE WHITE HOUSE & ARISTEGUI $8.5 million stolen from Canadian mining

Mexico’s Oil And Gas Sector: Background, Reform Efforts, And Implications For The United States, January 27, 2015 “Reforms are generally well- designed, but the way they are implemented will likely determine whether they prove to be as transformative as the Mexican government expects”. LUIS VIDEGARAY : Minister of Finance (Financial Times, February 16, 2015) “We can do 10 energy reforms, but if we do not add trust, we will not seize the full potential of the Mexican economy”. THE REFORMS WILL NOT TRANSFORM THE MEXICAN REALITY OVERNIGHT 9 ADMINISTRATIVE CAPACITY+ TRUSTWORTHINESS+PREDICTABILITY

EXPLORATION AND EXTRACTION SOME EXAMPLES OF “REGULATORY RISK” DISCRETIONARY POWERS ARE INDISPENSABLE BUT FOR GOVERNMENTAL OR ADMINISTRATIVE ACTING NOT TO BE ARBITRARY, IT MUST BE RULED BY LAW IN A CLEAR AND DEFINED WAY; OTHERWISE, THE GOVERNMENT´S ACTION WILL BE UNPREDICTABLE OR ILLEGAL. HYDROCARBONS LAW: A.BIDDING PROCESS B.SOCIAL IMPACT C.SANCTIONS D.ADMINISTRATIVE AND JUDICIAL REVIEW 10

EXAMPLE 1. WHERE IS THE DIVISION LINE? BIDDING PROCESS SLIM BIDDING PROCESS (DELEGATED POWERS- GUIDELINES/PROVISIONS/TERMS OF REFERENCE): Prequalification criteria (technical, financial execution and experience), awarding mechanism, “other acts and stages” (case by case criteria) BIDDING PROCESS TYPE A AND BIDDING PROCESS TYPE B (MIGRATIONS) OPEN RULES/ UNCERTAINTY Migrations, Parties excluded in a bidding process) LAWS REGULATIONS 11

EXAMPLE 2. SOCIAL IMPACT (REGULATORY TAKINGS?) ARTICLE 120: “The terms and conditions related to the bidding processes will set the amounts or the rules for their determination which the Contractor or Assignation Holder should provide for the humane and sustainable development of the communities or localities in which they carry out their activities in the areas of health, education, and labor, among others, without detriment to the obligations of the State”. PUBLIC INTEREST PRIVATE PROPERTY 12 Is there any kind of economic limit?

EXAMPLE 3. COMMAND AND CONTROL REGULATION SANCTIONS The Hydrocarbons Law establishes a set of sanctions in cases like the following: Lack of compliance with the terms and conditions which are established in the Assignations Violations of the Law and its regulatory provisions, as well as the regulations, guidelines, and administrative provisions within the competence of the Ministry of Energy Publishing, delivering or appropriating of the information belonging to the Nation. ConstitutionLawsRegulations 13 However: Regulation eliminates the sanctions under two conditions: spontaneous compliance and confession

EXAMPLE 4. IF THINGS CAN BE EASY LETS COMPLICATE THEM! DISPUTES RELATED TO CONTRACTS (WHAT ABOUT ENTITLEMENTS?) ADR + ADMINISTRATIVE REVIEW DISPUTES RELATED TO BIDDING PROCESS (FINAL RESOLUTION BUT WHAT ABOUT OTHER DECISIONS?) AMPARO INDIRECTO DISPUTES RELATED TO SANCTIONS ADMINISTRATIVE REVIEW A WEAK DIVISION LINE CONTRACTU AL CONLFICTS ADM. CONFLICTS JUDICIAL CONFLICTS 14

FINAL REMARKS IT IS IMPOSSIBLE TO PRESENT OR ANALYZE THE MEXICAN STRUCTURAL REFORMS IN AN ISOLATED OR DISSOCIATED WAY. THOSE WHO HAVE PRESENTED AND UNDERSTOOD THE REFORM JUST FROM THE PERSPECTIVE OF PRODUCTIVITY OR ECONOMIC GROWTH SHOULD NOT FORGET THAT OPERATING THOSE REFORMS IN A COMPLEX SCENARIO WILL DEFINITELY COME WITH CHALLENGES. EVEN THOUGH THE MEXICAN DEMOCRACY IS IN A PROCESS OF CONSOLIDATION AND IT IS POSSIBLE TO RECOGNIZE THE STEPS FORWARD WE HAVE TAKEN, THERE IS A LONG WAY WE NEED TO GO IN TERMS OF THE RULE OF LAW AND SOCIAL STABILITY. WE ARE USED TO THINKING THAT THE RULE OF LAW GUARANTEES THE POSITIVE IMPLEMENTATION OF THE REFORMS (ONE WAY DIRECTION-RELATIONSHIP), BUT I THINK THAT IT IS IMPORTANT TO THINK, AS WELL, ABOUT THE WAYS IN WHICH STRUCTURAL REFORMS CAN STIMULATE POSITIVE CHANGES IN THE PROCESS OF CONSOLIDATING THE RULE OF LAW. 15