Contracting with PEMEX

Transcription

1 Contracting with PEMEX INTSOK US/Mexico - Network Meeting September 12, 2013 / Norway House / Houston, TX Marcelo Páramo mpf@azar-abogados.com 1

2 Contents I. Anti-Corruption Legislation. II. PEMEX s Legal Regime. III.General Framework of PEMEX s Contracts. IV. Energy Reform Initiatives. 2

3 I. Anti-Corruption Legislation In 2012 new legislation came into effect to prevent corruption practices in federal government contracts ( Ley Federal Anticorrupción en Contrataciones Públicas ). Pemex, as a federal entity, is subject to this law. It applies to companies or individuals, whether national or foreign, who: Promise, offer, or give money or any type of present to any government employee to obtain an unfair advantage in procurement procedures. Promote or use their influence, economic power, on any public employee in order to gain advantage in a procurement procedure. Submit false information to obtain a benefit. This law also applies to foreign procedures where Mexican nationals are participating. 3

4 I. Anti-Corruption Legislation Severe economic penalties may be imposed in case of violation. Criminal prosecution may also take place. The Anti-Corruption Commission, a new federal authority has been created to overlook compliance of this law, perform investigations and impose sanctions. In addition, other laws have been enacted in Mexico last year to avoid money laundering and using funds for unlawful activities ( Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita ). 4

5 II. Pemex s Legal Regime In the past, oil and gas production has been relatively easy for Pemex. Cantarell and other large fields in shallow waters are declining. Mexico has great potential to increase oil and gas production, but it lacks the resources and technology, particularly in deep waters and non-conventional oil and gas fields. Due to legal and economic restraints, Pemex has not been able attract companies with the resources or technology to invest in deep waters or non-conventional fields. With the energy reform that is about to be discussed in Congress much more oil and gas activity is expected. 5

6 II. Pemex s Legal Regime According to the Mexican Constitution, the oil and gas industry is: Strictly reserved to the state-owned monopoly Pemex. No private participation is allowed, except through services contracts. Pemex, as a state-owned entity has a special contracting regime, and subject to strict government budget and spending rules. In 2008, a new legal regime for Pemex was created, without amending the Constitution. The intention of the new Pemex Law was to allow Pemex to enter into contracts more commonly used in the industry. 6

7 II. Pemex s Legal Regime Since 2008 Pemex s contracts related to productive activities are no longer governed by the general Procurement and Public Construction laws; they are governed by the Pemex Law and the Pemex Contracting Guidelines. Productive activities of the oil and gas industry, are: o o o o o Exploration, Production, Processing, Refining, and First hand sale of oil, gas and processed products. Other procurement and construction activities, not related to productive activities are governed by the general Procurement and Public Works laws. 7

8 II. Pemex s Legal Regime The 2008 Reform did not have the expected outcome. The principles behind the 2008 Pemex Law and Contracting Guidelines are the same as the Procurement and Public Works Laws, that is: As a general rule, the contracts must be awarded through public bidding procedures, As an exception, contracts may be awarded through restricted bidding procedures, or directly assigned, No rights shall be granted over oil reserves, suppliers or contractors may not book the reserves, No production sharing schemes or any other type of association compromising the reserves shall be allowed, Termination at will or for public convenience, Non-performance penalties (liquidated damages), Guarantees, bonds and other security may be requested, 8 Limitations on amending the contract.

9 II. Pemex s Legal Regime The only substantial benefit provided in the 2008 Pemex Law is Pemex is able to shift some of the risk in exploration and production activities to the contractor (Incentive Contracts). The contractor gets paid for the services provided, but in case of exploration and production, payment to the contractor is subject to finding a commercially productive field. The 2008 reform was a good effort to attract investment without changing the constitutional principles. However, it has proven to be insufficient. The President of Mexico has submitted to Congress a new reform which includes changing the Constitution. 9

10 III. Pemex s Contracts Pemex s contracts are government contracts, subject to nonnegotiable and mandatory rules. Some clauses that are common in Pemex s contracts are: National content: the contract requires that certain percentage (25%) of Mexican goods or labour are used in rendering the services. Non-performance guarantee: usually a bond or letter of credit up to 10% of the contract price. Penalties (liquidated damages): for non-compliance in the work schedule, caped to 10% of the contract price. Defects guarantee: once the services or works have been delivered, a bond has to be placed, up to 10% of the contract price and valid for 12 months. 10

11 III. Pemex s Contracts Insurance: is requested for each type of project. Amendments: Contract may only be amended under specific circumstances upon several authorizations. Unilateral contract termination rights: Rescission for non-performance. Pemex has the right to rescind the contract without the need to obtain a court decision. If the contractor wants to rescind the contract, it will have to go to court. Early termination for convenience. At any time, Pemex may terminate the contract, without the need to obtain a judicial decision. Contractor shall be paid for the services rendered up to the termination date, plus non-recoverable costs. If contractor wants to terminate, it will have to go to court. 11

12 III. Pemex s Contracts Unilateral termination rights may be convenient in case of public services or other type of government contracts, but not for the oil and gas industry. Suspension: Pemex, may also order suspension of the services. Contractor gets paid non recoverable costs. Assignment: Generally, contractor may not assign the contract, except for collection rights. Subcontracts: Subcontractors are permitted in some cases, but contractor remains liable, even for the work of subcontractors. Contractor shall defend and hold harmless Pemex against any action of the subcontractor. 12

13 III. Pemex s Contracts Liabilities: Liabilities are determined on a case by case bases. It is common that Parties liabilities are caped to the contract price, but this limit is not applied in case of negligence, wilful misconduct or bad faith. Contractor is fully liable for third party damages and lost profits (daños y perjuicios), including environmental damages. Under Mexican law, damages have to be direct. There are no indirect or consequential damages. Intellectual property: Contractor grants a permanent and transferable licence to use IP material related to the contract to Pemex. Any IP developed during the performance of the contract belongs to Pemex. 13

14 III. Pemex s Contracts Anti-corruption clause: Contractor warrants that any subordinated person or subcontractor shall not incur in any corrupt practice in relation to the contract. Applicable Law: Mexican Federal Law. Dispute Resolution: Mediation (conciliación) before a public authority (Secretaría de la Función Pública). Federal courts. Independent expert, for technical maters. Dispute boards. Arbitration under the International Chamber of Commerce rules, in Mexico, in Spanish, panel of three arbitrators. 14

15 IV. Energy Reform Last month, the President of Mexico submitted to Congress an initiative to reform the Constitution to allow private investment in the oil, gas and power generation industries. His party, the PRI is strongly supporting the reform. The highlights of the reform are: Constitutional amendment to allow Pemex to enter into contracts. No privatization, rather liberalization. The type of contracts would be defined in the implementing legislation, but production sharing agreements are expected. Hopefully, the Pemex contracting regime will change to make it more balanced and attractive to foreign companies. A new tax system for Pemex will be implemented. 15

16 IV. Energy Reform The PAN, the largest opposing political party, also submitted to Congress an initiative to reform the constitution, which is even more liberal than the President s reform, as it proposes concessions, instead of contracts. The PRD, left wing party, also submitted a reform, but it does not entail a constitutional reform. Between the PRI and the PAN there are enough votes (75% of Federal Congress and 50% of States Legislatures) to reform the Constitution to allow Pemex to enter into other types of contracts, more attractive to energy companies with the resources and technology necessary to increase oil and gas activity in Mexico. 16