Mexican Chamber of Representatives discarded the constitutional reform in the electricity industry

Mexico - 

Mexico Energy Commentary

The vote on the initiative, which, among other measures, intended to grant a majority and advantageous stake to state-owned companies, failed to reach the super-majority vote of two thirds established by the Federal Constitution.

After postponing the discussion of the initiative of constitutional reform with respect to the electricity industry submitted by the Federal Executive Branch, this Sunday, April 17, the Chamber of Representatives discussed and voted in favor of said Initiative but without reaching the super-majority vote of two thirds provided for in the Federal Constitution. Hence, it will not have any effect and the constitutional text of 2013 will remain in full force and effect.

According to article 135 of the Federal Constitution, the Initiative required the favorable vote of two-thirds of the representatives present thereat. As this quorum has not been reached, the Initiative has been discarded and, therefore, it will no longer pass to the Senate, provided that the Initiative will not be able to be submitted again in further sessions of the Congress this year.

As we reported in our previous alert, the Initiative intended to grant a majority and advantageous stake in such industry to the state-owned companies, limits and controls private participation in the generation of electricity, provides from the constitutional text for the cancellation of power generation permits previously granted to private parties, and disappear the regulatory agencies of the national electricity system and the wholesale electricity market.

Where are we and what's next?

Although the Initiative will no longer continue its course in the Congress of the Union, the 2021 reforms to the Electricity Industry Law (LIE) will continue to be applied as current law despite the fact that certain Ministers of the Supreme Court of Justice of the Nation (SCJN) have already ruled against the constitutionality of some articles of the LIE when resolving the Action of Unconstitutionality 64/2021.

In addition, in the up-coming days the SCJN shall resolve two Constitutional Controversies previously submitted against the reforms to the LIE. Although it is expected that these cases will be resolved in the same sense as the Action of Unconstitutionality 64/2021, there is still the possibility that any Minister of the Court could vote in a different sense.

On the other hand, Amparos filed against the amendments to the LIE will follow their course as there are no modifications in the constitutional provisions. Companies that did not file an Amparo against the amendments to the LIE may consider the possibility of filing this legal action against the first application act of the amended provisions.

What international defense mechanisms are available for investors?

Although the Constitutional text with the 2013 reform remains in force, the reforms to the LIE open the door to acts of authority that in application of it may involve indirect expropriation or violations of the standard of fair and equitable treatment in the light of the various bilateral and multilateral treaties on investment protection. In this regard, investment arbitration could be a viable alternative for foreign investors to defend their interests in a neutral forum such as arbitration administered by the International Centre for Settlement of Investment Disputes (ICSID).