Compliance risks with upcoming administration
Five years after the energy reform, regulatory compliance remains the main concern of industry and government and the main reason is regu- lations are burdensome and still new for everyone. Upstream operators have been facing a considerable burden of compliance costs with fair results as Mexican administrative law is complex and unique. Mexican president-elect, Andrés Manuel López Obrador has announced a careful review of the awarded oil and gas contracts. Furthermore, the new administration will most likely imply new challenges that will increase the industry’s risk profile of compliance.
There are four risk groups that require different management strate- gies: Government Type I, where the source is a government misunder- standing of compliance and Government Type II, those where there is a hardening of policy enforcement. Operator risks: those derived from cultural and economic barriers to achieve the necessary compliance standard. Legal risks: those derived from asymmetry between regula- tion and operation.
In Covar, we assist our clients to minimize these risks. We are a multidisci- plinary group of top economists, lawyers and engineers. Our competi- tive advantage relies on our team’s very own insight and understand- ing of the energy reform in which each of COVAR’s members has the dual perspective, as an active key player in the design and implementa- tion of the reform, and, as actual operators of these regulations, from each of the different Mexican regulators.
Government risks (Type I):
1b) Averse contract modification.
1e) Turnover costs.
Government risks ( Type II):
1a) Contract audits
1c) ASEA’s capture
1d) CNH-CRE’s capture
1f ) Increase of compliance cost (e.g. National Content and SIA).
2a) Misunderstanding of compliance
2b) Deviation from regulations caused by public-servant’s recommendations or someone else’s experience
2c) Misalignment of Operator’s and Industry (group) goals of advocacy.
3a) Any derived from a risk assessment of the contract and regulations, like the Clause
4.1 (Obligation to request authorization of implementation of SASISOPA in the first 180 days of the contract).