Monica Santoyo & Antonio Massieu, Associates, Santamarina y Steta Legal Solutions, Mexico
“The amendments were a massive achievement. Everyone was surprised by speed with which agreement was reached and the extent of the reforms.”
How long has the Santamarina y Steta been active in Mexico and what is the strategic importance of the energy sector to your operations?
Monica Santoyo: Santamarina y Steta is a full service law firm established back in 1947. We actually started out as part of Baker Botts LLP and in 1975 became a fully Mexican owned law firm. We nevertheless still maintain close ties with Baker Botts for some specialist legal matters. Our corporate headquarters is located in Mexico City, with subsidiary offices in Monterrey and Tijuana. We also plan to open an office in the Bajío area, which represents an interesting development that places us in an industrial park so as to be closer to our client base. Maintaining this degree of face-to-face contact with our clients is an aspect we consider to be especially important and distinguishes us from our competitors.
Another hallmark of Santamarina y Steta is our reputation as a ‘one-stop-shop’, which means our clients can rely on us to handle virtually the full range of legal matters from financial and labor law to taxation and intellectual property issues. The only real area we don’t cover is criminal law. We are currently developing a new project practice area that blends traditional corporate law with all the legal issues related to infrastructure, finance, energy, environmental regulation and real estate. We have structured our work in this way because we feel these are the core legal components needed to bring energy and infrastructure projects to successful completion.
The energy industry is of great strategic importance to Santamarina y Steta and we have adapted our working practices to meet the particular requirements of the sector. We have even started incorporating a human rights and community outreach dimension to our work, which is not strictly a legal matter, but is testament to the importance we attribute to helping our clients bring their projects to successful fruition.
Antonio Massieu: You can have instances where legal opinions are favorable, and permits have already been granted, but without the consent of the community, a project still cannot proceed. Often our client’s energy projects are located in delicate and sensitive areas so to have a specialized team on that matterwho can approach and win over the affected a community, irrespective of whether that community is indigenous or not, brings a real added value and can be instrumental to project success. Our job is to find the mechanisms in order to benefit everyone involved in the project (community, developer, law firm).
Our philosophy regarding community work is “to develop projects with the community, not at the community”.
To meet the needs of your clients in the global economy, Santamarina y Steta has forged strong alliances with independent firms in more than 60 countries as well as with numerous directories and international associations. How do these serve to strengthen your service offering to potential clients?
Monica Santoyo: One of the defining characteristics of Santamarina y Steta is the strong relationships that we have established with other law firms throughout the world. Each of these firms is a leader in their respective countries, with first-hand knowledge of both the local business environment and the local authorities, and each is a real expert in the laws and practices of their jurisdiction. This means we can offer our clients a network of benefits without borders. Being part of global strategic alliances also brings direct benefits to us as a company as it is common practice for trusted counsels in other countries to refer their clients to us for projects in Mexico.
Given your collective experiences in the local energy industry, coupled with your international outlook, how well developed would you say is the legal framework for the Mexican oil and gas sector?
Monica Santoyo: There have been a great many changes, especially in terms of transparency, clarity and efficiency. The sector is evolving at breakneck speed. I have personally been involved in providing legal services to the industry for more than a decade and during this time the rules of the game have changed dramatically. The main development under the current reforms is the new perspectives for foreign investment.
Antonio Massieu: The first big reform in the oil and gas sector was back in 1995. The electricity sector changed dramatically in 1992 from what it was before. Ever since, the country has being trying to move towards a legal framework that is more stable, clear and predictable. Finally, after more than twenty years of institutional straightening, that vision is becoming a reality and the legal structures are evolving more in line with international standards.
Change in any shape or form is never easy, and transforming a country’s energy policy is certainly no exception. Now that the amendments to the constitution articles 25, 27 and 28 have been passed and approved, what are the next steps to be taken to make the transformation complete?
Monica Santoyo: As we speak, the secondary legislation is being written and the hope is that it will be enacted before the end of the first semester of the year. The work itself is a very delicate process because the legislators have to be careful not to dilute the strength and the spirit of the constitutional reform. The amendments were a massive achievement. Everyone was surprised by speed with which agreement was reached and the extent of the reforms. With the writing of the secondary legislation we are now at a critical juncture. What is most important is that the new guidelines being adopted continue to reflect the original intent of the constitutional amendment and that there are no reversals in the reform process.
The constitution defines the goal and then the secondary legislation manages that goal. In other words, the amendments to the constitution inform us of our desired destination, but it is the secondary laws, regulations and guidelines that outline the details of how exactly we get there. The function of those secondary laws is therefore very important. They represent the rules of the game.
Antonio Massieu: Establishing secondary legislation is more challenging than it might appear because it is not just about adapting existing laws to reflect the revised constitution, but in many cases a question of writing new laws from scratch. Many of the regulations and secondary laws that will follow on from the constitutional amendment don’t yet exist in the Mexican legal framework. A further challenge is the institutional changes that have to take place that will entail the creation of entirely new government entities. Even once these new institutions are in place, they will have to be staffed with qualified personnel with an entirely different mindset to what has gone before.
From a legal perspective what are the keys to exploiting Mexico’s conventional and unconventional energy resources? And how well do the historic energy reforms address those issues?
Antonio Massieu: Since the beginning of the process we have strongly advocated linking the reforms to international models. We, of course, understand that the energy context in Mexico has its unique aspects, as do the energy sectors in other countries. Nevertheless given Mexico’s geographical position and type of natural resources, it is not necessary to come up with a legal framework that is entirely new. There are international models that have proved successful in other parts of the world and would be well applicable to the Mexican power and oil and gas sectors.
Two main problems with the existing set-up are the lack of cutting edge technology and the lack of resources. If Mexico incorporates international models (coupled with important private investments), both of these problems can be overcome, and Mexico will be able to start a proper exploitation of unconventional resources, in order to develop new industries, such as shale gas and shale oil. It is important to note the great potential Mexico has on these matters, so resources and technology have the utmost importance in order to be able to take advantage of said situation.
By adopting international contractual norms we will create a functioning industry that actually responds to the needs of the market, while the two main authorities in the sector, Pemex and the CFE can be restructured and outside technology and investment can be welcomed. It is not necessary to reinvent the wheel, and, thankfully, SENER is mindful of this and has been studying closely several international models such as Norway, Brazil, Colombia, among others.
Monica Santoyo: In terms of unconventional energy, last year was important for developments in solar power policy. The legislation is difficult to navigate and the process is very bureaucratic because the CFE is involved in virtually every aspect. What’s more, the CFE doesn’t always have the volume of qualified personnel and know how to provide the attention and service required by private companies. For every private sector power project there are certain authorizations and feasibility studies that have to be carried out and the process for securing contracts can be slow and inefficient. The same happens with non-conventional energy in general.
With the transitory constitutional reforms, we are heading towards a much more streamline and accurate process which will enable many new companies to come to Mexico to develop unconventional energy. The goals that SENER has set for a more diverse energy mix are highly ambitious, consisting of incorporating 35 percent of renewables into the energy mix, though the new legal context will facilitate the entry into the market of the type of firms that can help bring this about.
Unlike many countries, Mexico possesses considerable hydro, solar and wind potential and now that the market is opening up there will be many private companies that will endeavor to tap these resources. It is in anticipation of this that we have established our project development practice group.
Besides enhancing the country’s energy policies towards greater international participation, the existing mindset and business culture also needs to be aligned with the new reality that will soon define Mexico’s energy industry. How will this happen?
Monica Santoyo: One of the main elements of the reform process is the complete restructuring of Pemex and the Comisión Federal de Electricidad into productive companies of the state, which implies that they will compete with private entities that will be part of the new industry, having always the target of the creation of value. This will certainly entail a shift in mindset as these hitherto monopolies transition to new business models in the face of strong competition.
Antonio Massieu: The market itself will dictate a new need for different models. The reforms will render the private sector an active part of the industry and the public sector will effectively be forced to comply. This is because having an open market coexist with a closed government is simply not compatible.
What sort of advice do you have for prospective clients considering entry into the Mexican energy sector?
Monica Santoyo: Don’t be afraid of the Mexican market. The country has extensive natural resources and the new legal and institutional frameworks that are going to be put in place will create many attractive opportunities for investors not just in the oil and gas sector, but also in renewables and power distribution. Finalizing the secondary legislation will of course be challenging and institutional strengthening will certainly take time, but ultimately we are confident that the reforms will be a success.
Antonio Massieu: The energy reform is a great signal for the world. Mexico welcomes investment, and we are setting the foundations for it. One of the few (or maybe the only) advantages we have for being one of the last countries in opening the energy sector is that we have had the chance to study international (successful and unsuccessful) models around the world; we are taking advantage of this situation, and we will for sure come up with a functional model which will satisfy the needs of the industry.