Gabriel Ruiz Quoted in NGI’s Mexico GPI on CFE’s Uphill Legal Battle Over Pipeline Contracts

“CFE Faces Uphill Legal Battle Over Pipeline Contracts”

Mexico’s state power utility, Comisión Federal de Electricidad (CFE), will have a difficult time convincing international arbitrators to see its side of a high-profile dispute with four natural gas pipeline developers, according to Thompson & Knight LLP law firm partner Gabriel Ruiz.

CFE on July 1 disclosed that it had filed seven arbitration requests, six in London and one in Paris, pertaining to seven pipeline projects for which CFE is the anchor client, and which have faced delays for varying reasons.

All of the reasons, however, presumably meet the contracts’ criteria to be considered force majeure, Ruiz told NGI’s Mexico GPI, which is why CFE has had to make capacity payments to the developers despite the fact that the pipelines are not yet in operation.

President Andrés Manuel López Obrador and CFE general director Manuel Bartlett Díaz have publicly called the contracts unfair and abusive on repeated occasions, and demanded that certain clauses be renegotiated or removed entirely. The state-owned firm is seeking compensation for the fixed-capacity charges it has paid already, as well as reimbursement for the arbitration costs.

In the case of the 2.6 Bcf/d Sur de Texas-Tuxpan marine pipeline owned by Infraestructura Energética Nova (IEnova) and TC Energy Corp., CFE is seeking $899 million in compensation.

However, Ruiz said, “it’s very difficult for CFE to allege that a clause is abusive, because CFE prepared the contract, CFE put it on offer in a tender, and CFE awarded it.”

“What I think CFE will try to do is to say that these contracts were [awarded] under a previous administration, but for the arbitrator, it’s the same CFE,” said Ruiz, who specializes in the development of oil and gas projects, and represents both Mexican and international companies before Mexican governmental bodies and regulatory agencies.