Due to the constitutional reform published in the Official Journal of the Federation on June 10,2011, the protection of human rights was expanded, through the “Pro Homine” principle, toinclude provisions which require that international treaties be observed when they result in afavorable outcome. The foregoing applies despite the fact that prior to such reform, article 133 ofthe Constitution already incorporated the provisions of the treaties to which Mexico was a partyunder Mexican law. One of the international agreements that is of significant importance in thisarea is the American Convention on Human Rights, also known as the Pact of San Jose. Article63 of said convention establishes the fundamental right to “total reparation” or “faircompensation”, where the State must take the necessary actions to ensure that any violation offundamental rights, including ones caused by individuals, is repaired entirely or compensated ina fair manner given the damage caused.The concept of reparation consists of restoration of the victim to their situation prior to theviolation of their rights. Fair compensation applies when reparation is not possible, and consistsof reparation through monetary compensation that is sufficient given the damage caused.Based on the fair compensation of fundamental rights, the Mexico’s Supreme Court Justice hasbegun to issue criteria which lay out the process for incorporating the theory of “PunitiveDamages” into Mexican law.As its name indicates, the theory of punitive damages can generally be defined as an economicpunishment imposed on the party responsible for said damage, by the judge, in an extraordinaryamount, as a result of acting in bad faith or with malicious conduct. The theory has twoobjectives: (i) to provide relief for the victim and punish the responsible party for their conduct;and (ii) at the same time, to serve as an example.Traditionally, the notion of “damages” that has prevailed in Mexico has been limited to thereparation for direct and immediate consequences of harmful conduct against the victim, withoutany other objectives.Accordingly, by means of the two recent criteria issued by the First Chamber of theMexicanSupreme Court of Justice, Mexican law has been extended to allow for the issuance ofpunitive damages.It remains to be seen if Mexican courts will be cautious when applying these criteria, given thatthe expansion to allow for punitive damages may result in an increase of frivolous lawsuits.Additionally, it is desirable that legal reforms be enacted to provide for civil provisions on suchdamages, thereby establishing the guidelines for the application of the theory of punitivedamages in Mexico.Sources of information and disclaimer: The following sources of information, among others,have been used in preparing this document: Official Journal of the Federation, the Bank ofMexico, Supreme Court of Justice of the Nation, Department of Finance and Public Credit. TheCCN MéxicoReport ™ does not constitute legal or tax advice and should not be used forpurposes other than as purely informative for the general public. For more information on theCCN MéxicoReport ™, any of the issues mentioned therein or to inquire about legal services,please contact Rob Barnett (rbarnett@ccn-law.com) or Mario Melgar (mmelgar@ccn-law.com),phone (210) 222-1642.

One of the most important developments that the energy reform has brought to Mexican law isthe creation of a new institution known as the National Agency for Industrial Security andEnvironmental Protection in the hydrocarbons sector. Due to its lengthy name, in April 2015, itwas announced that such agency will be officially identified as the Security, Energy andEnvironment Agency (ASEA for its Spanish acronym).The constitutional reform of December 2013 ordered Congress to create a decentralized agencyof the Department of the Environment and Natural Resources (SEMARNAT for its Spanishacronym), with technical and administrative autonomy, and a certain degree of budget autonomy.Contrary to the National Commission of Hydrocarbons (CNH for its Spanish acronym) and theEnergy Regulatory Commission (CRE for its Spanish acronym), ASEA is not configured as acoordinated regulatory agency, independent from any other state department. According totransitory article nineteen of the constitutional reform decree, this agency is granted the authorityto regulate and supervise the installations and activities of the hydrocarbons sector on matters ofindustrial and operational security, and the protection of the environment, including dismantlingand abandoning the installations, and integrated control of waste. In this manner, an institutionalguarantee was conceived for the new article 25 of the Constitution, in accordance with whichcompanies will be subject to the use of productive resources for the common good, monitoringits conservation and protecting the environment. In addition, there will be a national policy forsustainable industrial development.The most recent reference to the creation of ASEA comes from the United States, where in 2011,the Bureau of Safety and Environmental Enforcement separated from the Bureau of OceanEnergy Management, with both separating from the Department of the Interior following theDeepwater Horizon platform disaster that, in 2010, took 11 lives and provoked the leak of 4.9million barrels of oil into the Gulf of Mexico. The first of these offices is in charge of industrialsafety and environmental regulation and the latter is in charge of the responsible development ofoffshore energy resources, including the assignment of blocks that are federal property. Theintent here was to avoid conflicts of interest following accusations of certain favorable regulatorytreatment for the oil industry. Following the same premise, in Mexico it was believed that theCNH should not be in charge of safety and environmental matters. However, Mexico went a stepfurther than its northern neighbors given that ASEA not only supervises ocean activities, but alsoeverything that forms a part of the value chain of hydrocarbons.During the debates held on the new energy laws that took place in 2014, one of the main topicsof concern and that took up most of the discussion time was the impact fracking had on theenvironment as a method of extracting oil and gas from the ground. The possible negative effectsof this technology have been analyzed in the United States from a legal and civil liability standpoint. Given the legal tradition in Mexico, it is safe to assume that the regulation will bescrupulous, one that incorporates the better practices of the U.S. industry and, above all, makingsuch regulations easily enforceable with efficiency.ASEA’s mission does not end there. It will be responsible for the supervision of thousands ofkilometers of pipelines that transport and distribute all types of combustibles, flammables, andexplosives, the huge refinery facilities in the country, gas stations, and the pipelines thatdistribute liquefied petroleum gas (consider the recent tragedy where a hospital in Cuajimalpa inMexico City collapsed). Petroleos Mexicanos (Pemex), an entity accustoms to self-regulation,will surely be the main entity being regulated. It is known that the first Executive Director ofASEA will come from Pemex due to its accumulated expertise, however, such individual shouldlook to assert its independence from Pemex in order to gain credibility.As far as other environmental matters, the SEMARNAT has transferred some of its authorities toASEA. For instance, matters such as the evaluation of environmental impact, integrated wastemanagement and also control of pollution emissions and greenhouse gasses are now underASEA’s jurisdiction. In accordance with the latter, strict regulations on methane venting andleaks in both upstream and the midstream is important. The ASEA is going to be a smallerSEMARNAT that specializes in oil and gas activities and their related products.On the other hand, it will be interesting to see how the ASEA will coordinate with the CRE.According to the Hydrocarbons Law, to grant transportation, storage, and distribution permits,the CRE must ensure that the applicant utilizes facility designs and equipment in accordancewith the applicable regulations and the best possible practices, with the appropriate conditions toguarantee the continuity of said regulated activities.The ASEA will require dozens of men and women with vast expertise on the matter and someknowledge on administrative procedures. The concern of a lack in human resources in the energysector is justified to this effect. Nonetheless, it is worth noting that the internal organizationalregulations of the agency have created many unities and general administrative departments, to be occupied by high level public servants. This is not about forming an army of generals butrather and army of soldiers and lieutenants that work well, both on the field and in the office.According to the transitory regime of the energy regulation, on March 2, 2015, the ASEAassumed all its authorities. It is important to be aware of general administrative-law regulationsthat might be emitted from this change. The expectation is that the new regulatory entity thatMexico is debuting will be up to par with tasks and responsibilities it is being tasked with.