Energy Reform 2025.

Mexico City, March 18th 2025.

The Federal Congress approved the draft decree of the energy reform promoted by President Claudia Sheinbaum, which was forwarded to the executive branch for its publication in the Federal Official Gazette (the «Reform«). This new legal framework redefines the organization of the energy sector through the enactment of eight new laws and the reform of three existing laws, strengthening the State’s leadership in planning, regulation, and operation of the electricity and hydrocarbon sectors.

Below are the key points of the Reform:

1. Enactment of Laws in the Electricity Sector.

A) Electricity Sector Law.

• Abolishes the Electric Industry Law («LIE«).
• Regulates the National Electric System («SEN«) prioritizing reliability and security of electricity supply.
• State retains exclusivity in planning and control of the SEN, as well as in public service of transmission and distribution of electricity.
• Modernizes Wholesale Electricity Market («MEM«), redefining participation criteria for generators and marketers.
• The Federal Electricity Commission («CFE«) will generate at least 54% of the electricity injected into the National Transmission Grid («RNT«) with the remaining portion allowed to be generated by the private sector.
• CFE is solely responsible for the basic electricity supply, although qualified users may opt to maintain basic supply if they meet the established requirements.
• The National Energy Commission («CNE«) will manage permits for generation, storage, and marketing of electricity.
• Establishes differentiation of permits based on installed capacity, regulating distributed generation, self-consumption, and centralized generation.
• Power plants with a capacity of 0.7 MW or greater will require a generation permit, those with lower capacity will not.
• Self-consumption can be isolated or interconnected.
• Simplified permits apply for capacities between 0.7 MW and 20 MW.
• Surplus energy may be marketed with third parties in accordance with established contracts.
• Next steps:
  – Within the first 180 days of its entry into force, the CNE must update rate and transmission methodologies in accordance with the new legislation.
  – Permits and contracts granted under the LIE will remain governed by their original terms and will not be extended once they expire.
  – Implementation of 51 projects aimed at increasing generation capacity by 22,674 MW from 2025 to 2030.
  – By 2038 the total installed capacity is projected to reach 176,516 MW, with a significant increase in clean energy.

B) CFE Public State-Owned Company Law.

• Abolishes the law of the CFE and extinguishes its subsidiaries.
• CFE becomes an autonomous public entity, sectorized to the Ministry of Energy (“SENER”) with legal personality and own assets.
• CFE will operate in electricity marketing and develop infrastructure in collaboration with private sector under regulatory frameworks.
• Special regime for acquisitions and contracts, exempting it from the public sector procurement law.
• Incorporates tender calls for the modernization of transmission and distribution infrastructure with mixed investment schemes.
• Activities are not considered a monopoly, ensuring competition in the electricity sector.
• CFE may operate through subsidiaries or associations, maintaining State control over strategic activities.
• Next steps:
  – CFE must fulfill financial, administrative, labor, fiscal, and legal commitments within 12 months of its entry into force.
  – Existing contracts and agreements will be respected as agreed upon when the law takes effect.
  – CFE will invest USD $23,400 million between 2024 and 2030, focusing on generation, transmission, and distribution projects.

C) Energy Planning and Transition Law.

• Abolishes the energy transition law.
• Incorporates the National Energy Transition Strategy (“NETS”), Electricity Sector Development Plan («PLADESE«), Hydrocarbons Sector Development Plan («PLADESHI«), and Sustainable Energy Transition and Utilization Plan («PLATEASE«).
• PLATEASE will have a 15-year horizon, with annual updates, and will be key for energy transition and sustainable energy utilization.
• PLADESE plans the modernization of the electricity sector.
• PLADESHI defines strategies for the development and modernization of the hydrocarbons sector.
• Clean Energy Certificates («CELs«) continue to be a tool to recognize clean energy generators.
• Financing projects are managed through agreements between users and financiers, with investment recovery through energy bills.

• Next steps:
  – SENER may apply prior provisions until the enactment of new regulations but must issue the corresponding regulations within the first 180 days.
  – Within 365 days, SENER must publish in the Federal Official Gazette the NETS, PLATEASE, PLADESE, PLADESHI, and set a minimum clean energy participation goal in electricity generation.

D) National Energy Commission Law.

• Incorporation of the CNE.
• CNE objectives and main responsibilities:
  • Integrates the Energy Regulatory Commission («CRE«) and the National Hydrocarbons Commission («CNH«), concentrating regulation in a single body.
  • Assumes supervisory functions on tariffs, regulation of electricity supply costs, and subsidy management.
  • Responsible for granting, modifying, and revoking permits in electricity generation and marketing and overseeing the MEM.
• Next steps:
  – All provisions, regulations, guidelines, and criteria issued by the CRE and CNH remain in effect unless they contradict the LCNE, until updated or replaced.
  – Permits, authorizations, and acts issued by the CRE and CNH will remain valid until expiration or revocation by the new authority.

E) Geothermal Law.

• Abolishes the geothermal energy law.
• Regulates exploration and exploitation of geothermal resources for electricity generation or other uses.
• Introduces concept of «exempt geothermal use» allowing use of small-scale geothermal resources without permits but with registration before SENER.
• SENER issues permits for various uses, allowing geothermal exploitation for non-electric activities.
• The «reassignment» allows for transferring geothermal areas granted to exploration permit holders or concessionaires.
• Lithium and other strategic minerals are excluded from geothermal exploitation without the corresponding concession under the hydrocarbons sector law and the mining law.
• SENER evaluates projects to reconvert oil wells for geothermal use and provides incentives for more beneficial geothermal energy compared to other renewables.
• Concessionaires and permit holders must submit annual technical and financial reports to SENER and permit holders of various uses, in accordance with the regulations.
• Next steps:
  – SENER has 180 days to issue the corresponding regulations.
  – Permits prior to its entry into force remain valid as granted.
  – Applications in process at the time of the new law will be processed according to the new legislation.

II) Enactment of Laws in the Hydrocarbons Sector.

1. Biofuels Law.

• Abolishes the law for the promotion and development of biofuels, regulating production, storage, marketing, and use.
• Encourages direct use of biomass as biofuel, including production, export, storage, transportation, and sale.
• Specific permits are required for production, import, export, storage, transportation, marketing, distribution, and sale of biofuels.
• SENER establishes traceability mechanisms to ensure control and monitoring in the supply chain.
• Creates a biofuels permits registry to document and update granted permits.
• Next steps:
  – Existing permits before the new regulation remain valid under the terms granted by SENER and CRE.
  – The head of the executive branch must issue the regulation within 180 days of the law’s entry into force.

B) Hydrocarbons Sector Law.

• Abolishes the hydrocarbons law.
• SENER and CNE will define investment schemes to expand refining and storage capacity.
• SENER will grant allocations to Mexican Petroleum (“PEMEX”) under own and mixed development schemes.
• PEMEX may enter into service contracts with private parties under schemes that maximize productivity.
• SENER may grant allocations for mixed development when PEMEX needs to complement technical, operational, or financial capabilities.
• PEMEX must maintain at least 40% participation in mixed contracts.
• SENER may enter into Exploration and Extraction of Hydrocarbons Contracts (“CEEs”) through tender or direct award.
• PEMEX may request the migration of allocations for own development to CEEs.
• PEMEX’s first-hand sale contracts must migrate to commercialization contracts.
• Next steps:
  – The federal executive branch must issue its regulations.
  – Requests for authorization or permits prior to the law will be processed according to regulations in effect at the time of submission.
  – Allocations and CEEs prior to the law will maintain their validity under the terms granted.
  – Permits granted by SENER, CNH, or CRE prior to the law will maintain their validity.
  – Integral exploration and production contracts prior to the law will not be modified.
  – PEMEX may request migration of allocations from integral exploration and production contracts to mixed development allocations.

C) PEMEX Public State-Owned Company Law.

• Abolishes the PEMEX law.
• Establishes PEMEX as an entity of the federal public administration, sectorized to SENER, with technical, operational, and administrative autonomy, legal personality, special regime, and own assets.
• PEMEX may engage in activities such as exploration and exploitation of hydrocarbons, refining, processing, storage, distribution, commercialization of oil, natural gas and their derivatives, and electricity generation.
• PEMEX may enter into contracts and mixed development schemes with private parties, sharing costs, expenses, investments, and risks.
• Allows legal, operational, and functional integration of the company, extinguishing the subsidiaries PEMEX Exploration and Production, PEMEX Industrial Transformation, and PEMEX Logistics, and transferring all their rights and obligations to PEMEX.
• Grants PEMEX possibility to have subsidiary companies to directly carry out hydrocarbon exploration and exploitation activities or through associations that do not violate legislation.
• Allows execution of exploration and extraction activities through work or service contracts, mixed development contracts, or through partnerships or consortiums with other entities.
• Establishes obligation to submit a restructuring proposal, including appointments and respecting contracts in force at the time.
• Next steps:
  – The general director of PEMEX must submit for authorization the proposed restructuring, organic statute, and relevant appointments for PEMEX.
  – Contracts, agreements, and other legal acts entered into by PEMEX and its subsidiary productive companies that are in force at the time this law comes into effect will be respected as agreed.
  – From the extinction of the subsidiary productive companies, PEMEX will be exempt from providing any guarantee required in contracts for exploration and extraction with the State.

III) Amendments to Existing Legislation.

A) Mexican Petroleum Fund Law.

• Regulates management and allocation of revenues derived from assignments and contracts, as well as agreements or resolutions for unification, to constitute the assets of the Mexican Petroleum Fund (“MPF”).
• Assets of the MPF will be made up of revenues derived from assignments, contracts, and agreements or resolutions for unification.
• Next steps:
  – In administrative coordination instruments for the exchange of information and technical assistance, when referring to CNH, it will be understood as SENER, until the effects are nullified or new agreements are made.

B) Hydrocarbons Income Tax Law.

• Adjusts tax regime applicable to hydrocarbon and electricity concessions, including revenues from hydrocarbon exploration activities as income tax on contractors and revenues from unified field areas.
• Tender bases for CEE and CEE for public State-owned companies or legal entities must have the sole purpose of hydrocarbon exploration and exploitation, with exceptions for PEMEX and other public companies.
• Assignors must annually pay oil right for well-being, applying rates to the value of the extracted hydrocarbons, without deductions (previously allowed deductions with a 54% rate).
• Next steps:
  – Obligations for the 2024 fiscal year must be fulfilled according to the provisions in effect until the new law comes into force.

C) Federal Public Administration Organic Law.

• Restructures regulatory bodies.
• Establishes periodic reports on concessions granted.
• Reinforces the independence of regulatory bodies to avoid conflicts of interest.

The Reform will come into effect the day after its publication in the Federal Official Gazette, which President Claudia Sheinbaum is scheduled to issue on March 18^th, 2025.

The attorneys in our energy and infrastructure practice are available for any questions or comments regarding this matter.

Sincerely,

Juan Carlos Serra

serra@basham.com.mx

Pablo Nosti Herrera

pnosti@basham.com.mx

Pamela Salas García

psalas@basham.com.mx

Iván Sánchez López

isanchez@basham.com.mx

Paola Arcos Seone

parcos@basham.com.mx