Sunday, September 26

AMLO: López Obrador’s electricity reform faces a long and uncertain legal battle

A thermal plant of the Federal Electricity Commission, in San Luis Potosí.
A thermal plant of the Federal Electricity Commission, in San Luis Potosí.Mauricio Palos / Bloomberg

Legislative approval of the controversial energy reform of the Mexican government was made on the run. The Senate, in particular, had enough a week to discuss and vote on it. But his passage through Congress is only the prelude to a battle that may last more than a year, which will be disputed from now on in domestic and international courts. While waiting for the new rule to be enacted, companies that are considered affected, civil associations that fear an impact on the environment and opposition parties that seek to hinder one of the Government’s priorities are sharpening a range of legal knives with which invalidate the reform or, at least, delay its implementation.

Is it constitutional or not? The legality of the reform, which limits private participation in the energy sector and marginalizes renewables, has focused the political debate. The Government and Morena, the majority party, insist that it is, since the Magna Carta reserves the planning and control of the electricity system to the State. “The Constitution did not establish any rule for the participation of individuals in exclusive areas of the State; He left everything to the law, ”said Ricardo Monreal, head of Morena’s bench in the Senate, on Tuesday. For President Andrés Manuel López Obrador, “there is nothing that violates constitutional rights, nothing, nothing, nothing. Anyway, (…) everyone has the right to resort to the protection of justice, “he said on Wednesday, a week after calling the lawyers who help companies litigate as” traitors to the fatherland “. .

Meanwhile, opponents of the project emphasize the alleged violation of the right to a healthy environment and the principle of free competition, mentioned in the Magna Carta. They also point out that although the Constitution is vague in certain aspects as Monreal says, the text has a battery of transitory articles that detail the contours of private participation in the sector. Circumventing them may require another constitutional reform, an option that the president has toyed with but which is unworkable at this time as Morena lacks a qualified majority in Congress. “This law changes market conditions and does so outside the constitutional framework,” says lawyer Óscar Cruz, from UNAM.

Amparo lawsuits: the first step

In this legal chess game, the priority of the opponents of the new norm will be the amparo trial, a mechanism provided by the Constitution for when a government action affects the rights of third parties. It is fast and, if the appeal is admitted, the judge can order the suspension of the application of the measure while the substantive issue is resolved. It is also the most accessible instrument for a variety of actors, from businesses to civil society.

The Mexican Center for Environmental Law (Cemda) is one of the environmental organizations that is considering appealing, as the lawyer Anaid Velasco confirms to this newspaper. By eliminating the criterion of electricity dispatch according to the cost of generation, the new model allows more polluting and expensive plants of the Federal Electricity Commission (CFE) to upload their production to the grid before renewable plants in private hands. “There are many rights involved, such as the human right to health and a healthy environment,” says Velasco. “Amparos are easily going to prosper.”

The affected companies plan to argue that, in addition to affecting the environment, the new model violates the principle of free competition by setting advantageous conditions for the CFE over its competitors. The norm contemplates the possibility of reviewing contracts already signed by the Government if they are unprofitable or constitute “fraud of the law”, which makes the private sector fear a wide discretion in the revocation or granting of permits. From Morena they try to calm the spirits and deny the threat of the monopoly: “Although the permits may be revoked, this will be possible under administrative procedures regulated by law,” Monreal said on Tuesday.

Energy companies are not trusting. A senior executive of one of the leaders in the sector, who attends EL PAÍS on condition of anonymity, defines the reform as “an attempt to strangle it.” “What we have left is the legal defense up to the court that is necessary,” he says. The Hogan Lovells law firm has already begun advising clients. “Most of the companies are analyzing the obligation or responsibility involved in contesting,” says partner Carlos Ramos. They have one month to file amparos from the enactment date. If they are admitted by the judge and there are no delays, the temporary suspension can take place in three or four days and the definitive one in another five, according to the office.

The strategy has already been successfully tested recently in similar scenarios. Since 2019, the Mexican authorities have tried on five occasions to limit the participation of private plants through administrative agreements, which has resulted in dozens of injunctions and definitive suspensions that have stopped the changes. Hogan Lovells alone has filed around 100 appeals for five corporate groups and more than 90% have been successful. The five corporations now contemplate resorting to the new reform and the first suspensions, the office foresees, will begin to fall in about a month and a half from its enactment.

To the Supreme Court

In parallel to the amparo trials, the Constitution provides for constitutional actions and controversies before the Supreme Court. If it is favorable to the complainants, the decision would deliver a final blow to the norm. However, contrary to amparo trials, the highest court rarely decrees suspensions while resolving the merits and the resolution times are longer, points out the jurist Sabino González, a former official of the Supreme Court: “It takes between three and three four months and it is up to the presidency of the court when it is listed for discussion. It’s a bit uncertain ”.

Opposition parties have already warned that they will take the rule to the highest court through a constitutionality action, which requires the support of 33% of legislators. The Federal Economic Competition Commission (Cofece), empowered to present disputes, has not yet ruled on this possibility, but has given clues. Two weeks ago, he advised Congress not to approve the reform, considering that “it would affect the model of the electricity industry foreseen in the Constitution, which establishes a competition regime in the generation and supply links.”

Last June, Cofece challenged an administrative agreement of the Energy Secretariat before the Supreme Court and the second chamber overthrew in February some parts that contradicted the legal framework and that are in line with the controversial reform just approved. Even so, this time it is not an administrative norm, but a law, and will therefore be dealt with in plenary session, which gives the Government a greater margin. Invalidating it would require a majority of 8 of the 11 ministers, a high bar.

International arbitrations as a last resort

If domestic resources fail, companies have at their disposal the dispute resolution mechanisms provided in the trade agreements signed by Mexico. Challenging before an arbitration panel does not imply a temporary suspension of the law as in amparo trials and the award can take more than a year and a half, two aspects that make it less attractive. “Many companies are in a contractual regime with the State. Waiting for an arbitration without having a suspension that makes it possible for the legal framework not to be modified until the fund is resolved would be exposing the investment itself too much, ”says Gabino González.

Regarding the T-MEC with the United States and Canada, the Mexican government has defended that the new rule does not contradict this trade agreement. In a recent press conference, López Obrador projected article 8.1 on a screen, which states that Mexico “reserves the sovereign right to reform its Constitution and internal legislation” and that the country has “inalienable and imprescriptible property” of hydrocarbons. in its basement.

But the recently approved reform does not address the extraction of hydrocarbons, but the electricity industry, and there are other considerations at stake, says Miguel Ángel Mateo, of Hogan Lovells: “No one doubts sovereignty. In the treaty there are also provisions regarding the environment and monopolies ”. The arbitration expert Óscar Cruz, from UNAM, also points to the clauses that protect investors from monopolistic practices. “Here there is that risk. If market conditions change radically, it can be considered an indirect expropriation ”, he says.

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