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Introduction

On December 20, 2013, the reforms to the Mexican Constitution permitting the investment of private capital in the hydrocarbons and electrical industries for the first time in 75 years were published. The secondary laws that were approved by Congress established the possibility of an arbitration clause being included in contracts related to energy projects. Arbitration of conflicts arising from energy contracts would open up many possibilities for private investors, although it would also present public policy concerns.

The purpose of this paper is to analyze both the scope and limits of arbitration as a means for resolving disputes related to energy contracts in Mexico, as well as the protection that foreign investors may receive when entering into this type of contract. Considering that the Mexican state has in the past violated the investment protection standards contained in treaties to which it is a party, whether or not foreign investors will be able to resort to investment arbitration—despite existing legal limitations—will be of particular importance.

With this in view, the first section describes and analyzes the constitutional and legal rules that allow for arbitration within the context of the new legal framework governing hydrocarbons and electricity in Mexico. The second section examines recent energy arbitration proceedings that, although occurring outside the context of the reform, have large implications for the same. It focuses on the case of COMMISA v. PEMEX, which involved both the Mexican Supreme Court of Justice and United States district courts. Finally, the third section will address the question of whether—given the limitations of the reform—investment arbitration would still be possible in the case of breaches of investment protection standards contained in treaties signed by Mexico. This last analysis is based on an investment arbitration case that has not yet been finalized as of the date of writing this paper: KBR v. Mexico, which arose directly out of the COMMISA case.

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