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Update on Mexico's Electricity Industry Law: Foreign Investor Remedies

Update on Mexico's Electricity Industry Law: Foreign Investor Remedies

On March 10, 2021, a Decree amending Mexico's Electricity Industry Law went into effect. The Decree nullifies the energy market liberalization reform of 2013-2014, which sought to attract private investors to Mexico's energy sector by putting a premium on low-cost power generation, confirming President Andrés Manuel López Obrador's ambitions to "rescue" the country's energy sovereignty. It has, however, been criticized by a number of national and international actors, including the Mexican Bar Association, which claims that its consequences could jeopardize Mexico's international obligations, among other things.

The energy companies in Mexico will be the first to be impacted by the Decree, but they will not be the only ones. Financial institutions that have invested in such ventures, whether by loans or other financial instruments, are likely to suffer a negative impact as a result of the Decree. Since the Decree is expected to raise electricity prices, it will most likely have an effect on investments in other non-energy-related sectors, such as manufacturing.

Remedies available for the private businesses affected by the Decree

Local Remedies- Affected businesses have 30 days to file a Constitutional Appeal Action under Mexican law. Investors in the energy sector may also request an injunction to prevent the Decree from being enforced. A federal judge imposed an injunction on March 18, 2021, blocking the Decree's effects.

Investor-State Dispute Resolution- Mexico is a signatory to over 40 bilateral and multilateral treaties that grant foreign investors important rights in the country. Many of these treaties enable foreign investors to have their disputes with Mexico arbitrated. International companies that are affected should also recognize the privileges given to them in their contracts with Mexico or its organs if any.

Key Takeaways

  1. The Decree amending Mexico's Electricity Industry Law, which was recently issued, is expected to have a major effect on foreign companies investing in Mexico's energy market.
  2. Investors in Mexico should evaluate whether and to what extent the Decree would affect them.
  3. Although the Decree's effects are currently halted by a federal court injunction, it’s uncertain if Mexico's federal circuit court will enforce the injunction and its implications on third parties. Businesses who have been affected will benefit from filing a complaint in Mexico's domestic court system. Since Mexican law allows affected businesses to appeal the Decree in local courts for a 30-day span, time is of the essence.
  4. International investors should take advantage of the investment arbitration system's guarantees, which have proved to be an important dispute settlement tool in the past when energy reforms have harmed foreign investors' interests.
  5. To avoid foreign investors, potentially losing their legal rights, domestic and international prosecutions should be coordinated.