MEXICO: An introduction to Energy & Natural Resources

Mexico 2025 Energy Overview: A New Era

The Mexican energy sector is once again undergoing significant change.

Just over a decade ago, a major energy reform liberalised power generation and commercialisation, along with all activities within the hydrocarbons value chain. The Electricity Industry Law, the Hydrocarbons Law, and various secondary provisions introduced through the 2013–2014 energy reform established the framework for developing projects in the power and oil and gas sectors in the years that followed.

However, this framework was altered four years later. The federal administration elected in 2018 moved away from the previous administration’s liberal vision for the energy sector. The Electricity Industry Law, the Hydrocarbons Law and several secondary provisions were amended, aiming to reinforce state dominance over the energy sector, prioritising the role of Mexico’s state-owned enterprises – Comisión Federal de Electricidad (CFE) and Petróleos Mexicanos (Pemex) – over private investors and developers. In response, multiple court injunctions were issued to prevent several of these amendments from coming into force and to protect the acquired rights of private investors and developers.

Six years later, the changes in the energy sector continued. On 5 February 2024, former President Andrés Manuel López Obrador submitted to the Chamber of Deputies several initiatives to reform the Mexican political constitution. Two of them concerned the energy sector: the reform on strategic areas and state-owned enterprises and the reform on the organisational structure of the federal administration.

Following the federal elections of June 2024, and with the governing party remaining in power, the process to discuss and approve the initiatives proposed by the former president on 5 February 2024, continued.

The constitutional reform on strategic areas and state-owned enterprises entered into force on 31 October 2024, and the constitutional reform on the organisational structure of the federal administration entered into force on 20 December 2024.

The constitutional reform on strategic areas and state-owned enterprises comprises the following main aspects:

• It modifies private companies’ participation in the electricity industry, shifting from “free competition” to a system where they no longer have “prevalence” over the CFE.
• It reclassifies CFE and Pemex from “productive” to “public” entities. Removing the “productive” designation implies that their primary purpose is no longer to generate economic value and profitability for the Mexican state, but rather to fulfil a social role. This involves preserving national energy security and self-sufficiency, and providing electricity in an accessible (but not necessarily profitable) way to the Mexican people.
• It also removes from the constitutional framework the possibility for private companies to enter into contracts with the Mexican state related to power transmission and distribution.

Likewise, the constitutional reform on the organisational structure of the federal administration eliminated the Energy Regulatory Commission and the National Hydrocarbons Commission as the current independent regulators of the energy sector and established that the economic and technical regulation of the energy sector will be carried out by the Ministry of Energy.

On 4 February 2025, the federal administration submitted to the Senate a package of 18 drafts of new secondary laws and amendments to existing laws resulting from the constitutional reforms mentioned above. The new constitutional framework and the secondary laws – once discussed and approved – resulting from the same will establish the manner for developing projects in the power and oil and gas sectors in the coming years. It will also establish the manner in which the acquired rights of investors and developers under the current legal framework will be respected.

The foundation of Mexico’s revamped energy sector rests on the principles of state dominance and the prioritisation of state-owned energy enterprises, CFE and Pemex, over private investors and developers. This does not mean that investors and developers will not have a place in the new Mexican energy sector. On the contrary, investors and developers will be needed in the Mexican energy sector in a context of growing demand of power and hydrocarbons driven by economic growth and nearshoring, lack of budgetary resources to develop power and oil and gas projects through Mexican state-owned enterprises, and the energy transition.

In the power sector, for example, the draft of the new Law of the Electricity Sector introduces two new ways of developing projects for the CFE. The first, the “joint investment” (inversion mixta), allows private investors to partner with the CFEin the development of power plants, provided the CFE retains at least a 54% ownership stake. The second, “long-term production”, enables developers to build power plants for the exclusive sale of their output to CFE.

Likewise, regarding hydrocarbons, the draft of the new Law of the Hydrocarbons Sector provides the possibility for private developers to work with Pemex in upstream activities (known as “mixed development modality”). According to the draft, Pemexwould select the company best complementing its technical, operational, or financial capabilities (as appropriate) through a bidding process.

In summary, the energy sector in Mexico is changing once again, and investors and developers need to adapt to this new reality. Developing projects that imply a net benefit to the country and working closely with the government at all stages of the project (planning, permitting, construction and operation) will be more important than ever. Lastly, obtaining appropriate legal advice to navigate the new rules and principles of the new Mexican energy sector will be crucial for developing power and oil and gas projects with legal certainty and minimising risks.