Mexico competition regulator advises on draft CRE regulations

HOUSTON (ICIS)–Mexico’s competition regulator COFECE issued an opinion on controversial draft regulations energy regulator CRE published via the website of regulatory reform agency CONAMER, adding to objections mostly from natural gas market participants submitted since August.

A document published on the draft regulation page on the CONAMER site shows CONAMER received on 18 October the COFECE opinion, which supports a clearer separation of its responsibilities from those of the CRE.

COFECE says that the draft regulation invades its responsibility to evaluate competition matters in part because it attempts to establish a methodology to analyse the effects of cross participation on the market.

Market participant cross participation in most markets in Mexico is normally evaluated by COFECE first. In addition, open access under the country’s 2014 hydrocarbons law requires private pipelines have strict separation between capacity holder and transporter roles. This requirement means that if a company owns a pipeline, it would not be able to directly control capacity in that pipeline, although other avenues have been an option like joint ventures.

COFECE’s opinion also points out that the draft regulation assigns to CRE the responsibility to evaluate the effects of cross participation on competition and market efficiency. The COFECE opinion warns that CRE attempts to replicate the competition analysis it normally undertakes based on its responsibilities outlined in Mexico’s legal and regulatory framework.

COFECE also says the CRE’s draft regulation does not recognize its specialisation, which is outlined in article 83 of Mexico’s hydrocarbons law. COFECE’s opinion states that the draft regulation attempts to give CRE some of COFECE’s responsibilities, generating uncertainty for entities that may apply for authorisation for cross participation. COFECE also points out various other elements of the draft regulation that if implemented would have CRE violate existing parts of Mexico’s law and regulations to the detriment of COFECE.

The opinion also calls on CRE to limit its regulation draft to the responsibilities Mexico’s law currently assigns to it and to reevaluate the timelines it proposes for the application phases for cross participation in the natural gas market.

CONSULTANT ADVISES NEXT STEPS

Susana Cazorla, former head of economic analysis at CRE who is now director and consultant at SICE nrgy & Madero, advises market participants seeking permits for cross participation to prepare their applications for the existing process as soon as possible in addition to submitting public comment to the draft publication, which remained open on the CONAMER page as of 26 October.

Cazorla said that while the draft proposed by CRE has some positive aspects including more details on the cross participation authorisation process that had needed to be developed, it can be inferred that the draft regulation would not have the objective of promoting competition in the hydrocarbons markets.

The consultant said that some of the language in the draft regulation would allow CRE to impose additional discretionary measures not outlined in the draft. Such a situation would increase uncertainty because market participants could not foresee and plan for such discretionary measures at the beginning of the authorisation process, according to Cazorla.

The economist said that if implemented, the draft regulation would most likely be used to continue obstructing the regulated activities of the private sector and to favour state-owned companies Pemex and CFE.

This would be the likely way of implementing the draft regulation because the current administration, which appointed all but one of the current CRE commissioners, has the stated goal of bolstering Pemex and CFE.

No official response from the CRE had been published to the public comments or the COFECE opinion on the draft regulation page as of 25 October. No date had yet been set for the regulation to be made official in Mexico’s federal official gazette DOF either.