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PROVISIONAL SUSPENSION TO THE ENTRY INTO FORCE OF THE ELECTRICITY INDUSTRY LAW

Following up on our latest note related to the recent reform to the Electricity Industry Law that came into effect on March 10th, 2021, we hereby inform you that today, March 11th, 2021, the Second Judge in administrative matters specialized in Economic Competition, Broadcasting and Telecommunications, granted a provisional suspension to the entry into force of the decree to reform the aforementioned Law.

Although this suspension was granted to the complainant, the company “Parque Solar Orejana”, the court ruling established that in order to avoid distortions in the electricity market, the provisional suspension will be applicable to all participants of the “Wholesale Electricity Market”.

We will continue to inform you about the evolution of this and other legal consequences that derive from the decree to reform the Electricity Industry Law.

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Amendment to the Electricity Industry Law.

On March 10th, 2021, the “Decree amending and adding various provisions of the Electricity Industry Law” came into force (hereinafter the “Decree“), which was published in the Federal Official Gazette a day before, and that seeks to strengthen the Federal Electricity Commission (hereinafter “CFE“, as per its Spanish abbreviation).

The relevant aspects of the Decree focus on introducing new figures that will have direct consequences for the energy sector and the Mexican economy, which are: (i) Vested Electric Power Plant[1]; (ii) Electricity coverage contract and its modality with a physical delivery commitment; and (iii) Vesting contract for basic supply.

In general terms, these figures give preference to the consumption of electrical energy generated (hydroelectric and fuels) by the CFE and secondly, the energy generated by private investment (wind, solar, and combined cycle). Likewise, this Decree eliminates the obligation to carry out energy auctions that allowed individuals greater competitiveness to supply energy to the CFE.

On the other hand, the approval of the new electricity generation permits will be subject to the criteria of the Ministry of Energy (hereinafter “SENER” as per its Spanish abbreviation) and the National Electric System, as well as there will be greater freedom for the granting of Green-Energy Certificates (“CELs” as per its Spanish abbreviation), a situation that could cause a loss in its market value.

To materialize these changes, the Decree, within 6 months after the entry into force, orders SENER, the Energy Regulatory Commission (hereinafter “CRE“, as per its Spanish abbreviation) and the National Center of Energy Control, to modify and align with the Decree the provisions of electrical energy contained in the agreements, resolutions, guidelines, policies, criteria, manuals and other instruments that they have issued.

Likewise, it gives the CRE the power to (i) revoke the current self-supply permits that have been granted or processed fraudulently and under the Electric Energy Public Service Law; and to (ii) review the profitability and legality of the generation contracts of private producers.

It is relevant to distinguish that the electrical industry plays an important role in the climate change that we are experiencing. It seems that the consequences of the Decree will not allow a complete proactive collaboration between the public and private sectors that could mitigate price volatility and reduce CO2 emissions to the environment. We will follow up on the reactions and legal consequences that derive from this reform and will inform you promptly. In Acedo Santamarina we remain at your service for any query in relation to the Decree.

[1] Which is defined as a power plant that is not included in a permit to generate electricity, which is owned by the State and whose construction and delivery is independent of its financing modality.

Daniela Cervantes Escamilla

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Creation of the National Trade Facilitation Committee

On January 22 of 2021, it was published on the Federal Official Gazette (“DOF” in its Spanish Acronym) the Agreement for the creation of the permanent National Trade Facilitation Committee (herein the “Agreement). The purpose of the National Trade Facilitation Committee (herein the “Committee”) is to facilitate the coordination between governmental offices, agencies of the Federal Public Administration and independent constitutional agencies, within the scope of their different competences, participate in the regulation of programs related to foreign trade.

The aforementioned addresses both, the National Development Plan 2019-2024 as well as the Protocol Amendment of the Marrakech Agreement that establishes the World Trade Organization (herein the “Protocol”), which indicates in the second paragraph of Article twenty-three in the institutional arrangements, that each member will maintain or establish a National Trade Facilitation Committee. The purpose is to improve trade facilitation in order to abolish the inefficient procedures and requirements, resulting in a reduction of trade costs and simplifying administrative procedures.

The Agreement seeks to materialize the content of the Protocol, in order to accelerate the implementation of the trade facilitation provisions, based on national and international applicable regulations.

The Committee shall be composed of the following entities representatives: Secretariat of Economy, Secretariat of Foreign Affairs, Secretariat of National Defense, Secretariat of Finance and Public Credit, Secretariat of Environment and Natural Resources, Secretariat of Energy, Secretariat of Agriculture and Rural Development, Secretariat of Communications and Transportation and Secretariat of Health. All of the above, with the right to speak and vote in the sessions in which they are present.

Furthermore, it is expected to have as permanent guests the representatives of the Mexico’s Central Bank, the Tax Administration Service, the National Commission for Regulatory Improvement, and the Federal Antitrust Commission. In the same way, it is emphasized that when estimated, the Committee may include as guests the representatives of the private sector, civil society organizations, academic institutions and all subject matter experts. All of the above, with the right to speak in the sessions in which they are present.

Among the Committee’s important functions, the following may be highlighted:

  1. Serve as a coordinating body for the competent entities of the Federal Public Administration participating in the implementation and application of the Agreement.
  2. Collaborate with the Secretariat of Economy and the Secretariat of Foreign Affairs in the design of politics, programs and actions oriented to simplify and automatize the processes in matter of foreign trade.
  3. Propose suggestions related to implementation and application matters of the Agreement.
  4. Analyze, and when needed, submit recommendations in order to improve the efficiency of foreign trade processes, with the aim of reducing costs and eliminate trade barriers.

The creation of the Committee will encourage the strengthening of foreign trade policies, benefiting our country.

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Amendment to the Federal Telecommunications and Broadcasting Law.

On January 12, 2021, the Amendment Decree through which a section IV is added to subparagraph A) and the section (IV) of the subparagraph B) is abrogated from article 298 of the Federal Telecommunications and Broadcasting Law, was published in the Mexican Federal Official Gazette (the “Amendment Decree”).

Under the Amendment Decree, the penalty for carrying out violations to the law, regulations, administrative provisions, fundamental technical plans and other provisions issued by the Federal Institute of Telecommunication, as well as to the concessions or authorizations not expressly referred to in Chapter II of the Federal Telecommunications and Broadcasting Law (the “General Violations”), which was provided for in Section (IV) of the subparagraph B) of Article 298 of the Federal Telecommunications and Broadcasting Law (the “Law”) was abrogated and included, with exactly the same text, in section IV, subparagraph A of the aforementioned Article 298. In consequence, the penalty for breaching the General Violations decreased from 1% to 3% to 0.01% to 0.75% of the income of the concessionaire or authorized.

It is important to mention, that Section (IV) of the subparagraph B) of Article 298 of the Law that is abrogated under the Reform Decree, was declared unconstitutional by resolution of the Supreme Court of Justice of the Nation in the normative section of the 1%, for considering that such provision violates Article 22 of the Political Constitution of the Mexican United States, as it is an excessive penalty that neglects the due relationship between the conduct, the consequences produced and the applicable penalty, besides that the minimum fine is greater than the minimum fine applicable for other infringements. This led to the jurisprudence 2ª/J. 167/2017 (10ª).

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