Mexican Congress rejects electricity constitutional reform and approves bill to regulate lithium
On September 30, 2021, Mexican President Andrés Manuel López Obrador submitted a constitutional reform initiative (the Electricity Reform) before the Mexican House of Representatives (Cámara de Diputados). The Electricity Reform sought to dismantle the energy legal framework, particularly with respect to the power sector derived from the 2013 Energy Reform, and grant a dominant role to the Federal Electricity Commission (Comisión Federal de Electricidad), both at the regulatory and market levels.
On April 17, 2022, during a debate on the Electricity Reform before the House of Representatives, President López Obrador’s proposal did not reach the qualified majority necessary for its approval and was therefore dismissed.
The same day, President Andrés Manuel López Obrador filed an initiative with a draft decree that seeks to amend and add several precepts to the Mining Law (Ley Minera) to regulate the exploitation and utilization of lithium (the Mining Reform), which was approved by the House of Representatives and the Senate on April 18 and 19, 2022, respectively. As we explain below, the Mining Reform will enter into force the day after it is published in the Federal Official Gazette (Diario Oficial de la Federación).
Likewise, on April 18, 2022, the Mexican Supreme Court of Justice (Suprema Corte de Justicia de la Nación or SCJN) dismissed the constitutional controversy 44/2021 (controversia constitucional 44/2021) filed by the Federal Commission of Economic Competition (Comisión Federal de Competencia Económica or COFECE). COFECE filed the constitutional action against the reform to the Electricity Industry Law, published on March 9, 2021.
Below, we outline the House of Representatives’ decision regarding the Electricity Reform along with a brief description of the Mining Reform and its possible implications. We additionally provide key details on the SCJN’s decision.
The House of Representatives’ decision
After a long debate, on April 17, 2022, with 275 votes in favor and 223 against, the Electricity Reform filed by President López Obrador did not reach the two-third majority required for its approval and was therefore dismissed.
One of the Electricity Reform’s most notable elements was the regulation of the exploitation and use of lithium exclusively by the Mexican State.
Once the Electricity Reform was dismissed, on April 17, 2022, the Mexican president filed with the House of Representatives the Mining Reform, which seeks to achieve, in his words, the “nationalization” of lithium. The House of Representatives approved the bill on April 18, 2022. Subsequently, the Mining Reform was submitted to the Senate for discussion and approval; thereafter, the Mining Reform was approved by the Senate on April 19, 2022.
The Mining Reform poses significant changes to the private industry. Specifically, it eliminates the possibility of granting concessions for the exploration, exploitation, benefit and use of lithium and creates a new decentralized public agency (organismo público descentralizado) in charge of the exploration, exploitation, benefit and use of the substance.
The Mining Reform reforms articles 1, 5, 9 and 10 of the Mining Law, whereby, mainly:
- The exploration, exploitation, benefit and use of lithium is reserved exclusively for a new, decentralized public agency to be created, which will manage and control the “economic value chains”
- The exploration, exploitation, benefit and use of lithium is declared of public purpose (utilidad pública) to prohibit granting concessions, licenses, contracts, permits, assignments or authorizations in this regard and
- Lithium, along with other minerals declared as “strategic[,]” under the terms of articles 27 and 28 of the Mexican Constitution, are exempted from the exploration and exploitation of minerals and substances by private parties permitted under the applicable provisions under articles 2, 4, 27 and 28 of the Mexican Constitution.
The House of Representatives debated and approved the Mining Reform on April 18, 2022, and the Senate debated and approved the Mining Reform on April 19, 2022.
The Mining Reform will become effective the day after its publication in the Federal Official Gazette, and the Federal Executive will issue the corresponding instrument for the creation of the new decentralized public agency aformentioned, within 90 business days after the Mining Reform becomes effective.
The SCJN dismisses the constitutional controversy COFECE filed against the Electricity Industry Law reform
By a majority of six to five votes, the SCJN dismissed the constitutional controversy 44/2021, filed by COFECE against the Congress of the Union and the Federal Executive Power. The SCJN dismissed this action because COFECE does not have a legitimate interest to challenge the subject matter under the reform to the Electricity Industry Law, published on March 9, 2021.
As a result of the measures adopted since 2020 and those set forth in the Mining Reform, foreign investors involved in projects in Mexico may wish to consider their rights and potential remedies under Mexican law – such as amparo protection – as well as under the applicable investment treaties and other international instruments, such as investor-state international arbitration.
Please see our series of articles on the potential for investment claims arising out of measures taken by the Mexican government in connection with the Energy sector:
- Mexican Supreme Court dismisses Unconstitutionality Action against Electricity Industry Law reform (8 April 2022)
- New developments in the Mexican energy sector generate uncertainty (November 17, 2021)
- President of Mexico files constitutional reform bill on electricity (October 7, 2021)
- Reforms in the energy legal framework in Mexico and challenge mechanisms (June 4, 2021)
- Mexico’s Hydrocarbons Law Reform Bill: A controversial new measure in the Mexican energy sector (April 8, 2021)
- Reform to the Electric Industry Law: a new risk for energy projects in Mexico (March 10, 2021)
- New measures threaten investments in the Mexican energy sector (July 14, 2020)
- Mexican renewable energy projects affected by new measures (May 19, 2020)
If you have any questions about these measures and their implications, please contact any of the authors.