Agreement Establishing General Provisions Regarding the Federal Government's Assumption of Payment Obligations for Pensions and Retirement Benefits of the Federal Electricity Commission — SHCP — MX

DOF: 14/11/2016

AGREEMENT ESTABLISHING GENERAL PROVISIONS REGARDING THE FEDERAL GOVERNMENT'S ASSUMPTION OF PAYMENT OBLIGATIONS FOR PENSIONS AND RETIREMENT BENEFITS OF THE FEDERAL ELECTRICITY COMMISSION

At the margin, a seal with the National Coat of Arms, which reads: United Mexican States.- Ministry of Finance and Public Credit.

Agreement 85 /2016

GENERAL PROVISIONS REGARDING THE FEDERAL GOVERNMENT'S ASSUMPTION OF PAYMENT OBLIGATIONS FOR PENSIONS AND RETIREMENT BENEFITS OF THE FEDERAL ELECTRICITY COMMISSION

JOSÉ ANTONIO MEADE KURIBREÑA, Secretary of Finance and Public Credit, pursuant to the provisions of Articles 31, fractions V, VI and XXIV, of the Organic Law of the Federal Public Administration; Transitory Fourth, paragraphs third and fourth, of the Decree by which various provisions of the Federal Budget and Fiscal Responsibility Law and the Federal Public Debt Law are reformed, added to and repealed, published in the Official Gazette of the Federation on August 11, 2014; Article 1, fraction I, of the Federal Public Debt Law; Article 2, first paragraph, of the Federal Revenue Law for the Fiscal Year 2016; and Article 6, fraction XXXIV, of the Internal Regulations of the Ministry of Finance and Public Credit, and

CONSIDERING

That Transitory Fourth of the Decree by which various provisions of the Federal Budget and Fiscal Responsibility Law and the Federal Public Debt Law are reformed, added to and repealed, published on August 11, 2014 in the Official Gazette of the Federation (Decree), establishes that the Federal Government may assume a proportion of the payment obligation borne by the Federal Electricity Commission of the pensions and retirement benefits recognized and actuarially registered in its financial statements that correspond to its workers who were hired until August 18, 2008, the date on which the company signed an agreement with the union to adopt the individual account scheme for new hires, in accordance with the contractual stipulations in effect on that latter date;

That pursuant to said provision, the Federal Government may assume a proportion of such obligation provided that, within the year following the entry into force of the Decree, the Federal Electricity Commission:

1) reaches an agreement to modify the collective labor contract and the Work Manual of the Command Public Servants of the Federal Electricity Commission, applicable in the company, and
2) implements a Program of Austerity in Spending;

That in terms of Transitory Fourth of the Decree, the aforementioned modifications must:
1) lead in the medium term to a reduction in the payment obligations of the company's pensions and retirement benefits;
2) contemplate, at least, that the pensions or retirement benefits of new workers are financed under individual account schemes that allow the portability of rights with the Retirement Savings System;
3) establish the necessary mechanisms so that active workers hired until August 18, 2008, voluntarily adhere to said individual account schemes, and
4) contemplate a gradual adjustment to the parameters to determine the pensions of active workers, including the retirement age, in order to reflect the change in life expectancy, with the aim of adjusting it to the parameters currently established in the other pension and retirement systems of the Federal Government institutions;

That, likewise, it was established as a requirement that a specific audit be carried out by the Superior Audit Office of the Federation, regarding the labor liability of the Federal Electricity Commission in order to identify the characteristics of the payment obligations of the pensions and retirement benefits, and the determinants of their evolution;

That on October 10, 2016, the General Director of the Federal Electricity Commission sent to the Ministry of Finance and Public Credit the letter DG/077/2016, in which it communicates and explains the acts and actions carried out by the company in terms of the Decree, as well as the reasons and grounds for which it estimates that the requirements were met and the objectives established in Transitory Fourth of the Decree were achieved, attaching the corresponding supporting documentation;

That in the aforementioned letter, the Federal Electricity Commission sent a calculation of the amount of the reduction in the payment obligation of the pensions and retirement benefits at its charge that resulted from the modifications made to the aforementioned Collective Labor Contract, and to the Work Manual of the Command Public Servants of the Federal Electricity Commission, which amounts to $161,262,000,000.00 (one hundred sixty-one million two hundred sixty-two million pesos m.n.);

That after analyzing the documentation sent by the Federal Electricity Commission, it is considered that the company complied with the provisions of Transitory Fourth of the Decree, as well as with its objective, by achieving a reduction in the labor liability for retirement and pension benefits;

That the National Development Plan 2013-2018 in its section IV. Prosperous Mexico, within Objective 4.1. "Maintain the macroeconomic stability of the country" and Strategy 4.1.1. "Protect public finances against macroeconomic environment risks", provides as a line of action to promote the sanitation of the finances of parastatal entities;

That the National Development Financing Program 2013-2018 establishes, on the one hand, as part of Strategy 3.5 "Contribute to an improvement in the finances of the dependencies and entities of the Federal Public Administration", the line of action 3.5.1 "Promote sound and prudent financial management of the Federal Public Administration" and, on the other hand, in Strategy 5.5 "Strengthen the Retirement Savings System to increase the coverage and sufficiency of the country's different pension schemes", the Line of action 5.5.1 "Promote the strengthening, sustainability and portability of the country's different pension systems (including decentralized organisms, parastatals, Federative Entities and Municipalities) to carry out the transformation of their pension systems into sustainable systems that offer security to the worker";

That by means of communication OASF/0805/2015 dated July 24, 2015, the Superior Auditor of the Federation sent to the Federal Electricity Commission the "Report on the Result of the Audit carried out on the Labor Liability of the Federal Electricity Commission", in which it highlighted that there was a risk of an increase in pension benefits that would hinder the financing of said pensions. In this sense, the compliance by the Commission with the content of Transitory Fourth, expressed in these considerations, has contributed to containing said risk warned by the Superior Audit Office of the Federation.

That in view of the foregoing, it is considered appropriate that the Federal Government assume a proportion of the payment obligation of pensions and retirement benefits, described in the first consideration of this instrument, up to an amount equivalent to the reduction of the labor liability for said concept, achieved by the Federal Electricity Commission;

That for this purpose, this Ministry considers it appropriate that an independent expert in pension matters review the calculation of the aforementioned reduction in the payment obligation, the methodology applied, as well as all other information that directly or indirectly affects the savings reported by the Federal Electricity Commission, with the purpose of having elements that give certainty and transparency about the amount of the obligation that the Federal Government will assume, and

That the third paragraph of Transitory Fourth of the Decree authorizes the Ministry of Finance and Public Credit, taking into consideration the stability of public finances and the compliance with the objectives, strategies and lines of action of the National Development Financing Program, to establish the terms, conditions and amounts, to cover the proportion of the labor liability assumed by the Federal Government, as well as to determine the financing mechanisms and payment schemes and the other general provisions necessary for its implementation, I have deemed it appropriate to issue the following

GENERAL PROVISIONS REGARDING THE FEDERAL GOVERNMENT'S ASSUMPTION OF PAYMENT OBLIGATIONS FOR PENSIONS AND RETIREMENT BENEFITS OF THE FEDERAL ELECTRICITY COMMISSION

CHAPTER ONE

GENERAL PROVISIONS

FIRST.- These provisions aim to establish the terms, conditions, amounts, financing mechanisms and payment schemes, through which the Federal Government, through the Ministry, will assume a proportion of the payment obligation of the pensions and retirement benefits recognized and actuarially registered in the financial statements of the Federal Electricity Commission, that correspond to its workers who were hired until August 18, 2008, in accordance with the contractual stipulations in effect on that latter date, in terms of Transitory Fourth of the Decree.

SECOND.- For the purposes of these Provisions, the following shall be understood:

I. Decree: the Decree by which various provisions of the Federal Budget and Fiscal Responsibility Law and the Federal Public Debt Law are reformed, added to and repealed, published in the Official Gazette of the Federation on August 11, 2014;

II. Banking Business Day: any day on which, in accordance with the calendar determined and published by the National Banking and Securities Commission in the Official Gazette of the Federation, financial institutions provide services;

III. Law: the Federal Budget and Fiscal Responsibility Law;

IV. Federal Government Payment Commitment: the amount equivalent to the Validated Reduction, which the Federal Government will assume in terms of these Provisions;

V. Obligation: the amount of the obligation borne by the Federal Electricity Commission, to pay the pensions and retirement benefits recognized and actuarially registered in the financial statements of the Federal Electricity Commission, that correspond to its workers who were hired until August 18, 2008, in accordance with the contractual stipulations in effect on that latter date;

VI. Validated Reduction: the amount determined by the independent expert referred to in Provision Fourth, equivalent to the reduction of the Obligation as a consequence of the modification to the Collective Labor Contract and to the Work Manual of the Command Public Servants of the Federal Electricity Commission;

VII. Ministry: the Ministry of Finance and Public Credit;

VIII. Securities: the credit instruments issued by the Federal Government in favor of the Federal Electricity Commission, which cover the amounts that will be delivered annually to cover the Federal Government Payment Commitment, and

IX. UDIS: the Investment Units referred to in the Decree by which obligations that may be denominated in investment units are established and various provisions of the Federal Tax Code and the Income Tax Law are reformed and added to, published in the Official Gazette of the Federation on April 1, 1995.

THIRD.- The interpretation of these provisions for administrative purposes, as well as the resolution of matters not provided for therein, corresponds to the Insurance, Pensions and Social Security Unit and the Public Credit Unit of the Ministry, within the scope of their competencies.

CHAPTER TWO

ON THE TERMS, CONDITIONS, AMOUNTS, FINANCING MECHANISMS AND PAYMENT SCHEMES

FOURTH.- The Ministry will hire, in terms of the applicable provisions, the services of an independent expert to review the calculation of the reduction to the Obligation, the methodology applied, the maturity profile of the Obligation, as well as all other information provided by the Federal Electricity Commission, which directly or indirectly affects said calculation.

The amount resulting from such review will be the Federal Government Payment Commitment, which must be published by the Insurance, Pensions and Social Security Unit and the Public Credit Unit in the Official Gazette of the Federation.

The maturity profile of the Obligation reviewed by the independent expert will serve as the basis for establishing the applicable payment profiles for the issuance of the Securities.

The result of the review must be delivered by the independent expert within three months following the date of its hiring.

FIFTH.- The Federal Government Payment Commitment will be assumed by the Ministry through the subscription of Securities, which will have the following characteristics:

I. They will be denominated in national currency or in UDIS;

II. They will have annual maturities on October 31 of each year, starting in 2018. In case the maturity date is not a Banking Business Day, the payment will be made on the next immediate day;

III. Their payment profiles, that is, the maturity dates and amounts, will correspond to the payment profiles validated by the independent expert pursuant to Provision Fourth, third paragraph;

IV. They will be non-negotiable;

V. They may or may not accrue interest, in which latter case it must be determined in accordance with the Federal Government's cost in similar term operations, and

VI. The Ministry may prepay any of the Securities, totally or partially, without penalty or premium, on any date, prior notice presented to the Federal Electricity Commission, in accordance with what is established in Provision Tenth, and in terms of the valuation methodology determined by the Ministry itself.

SIXTH.- The Ministry may issue a number of Securities less than that corresponding to the payment profiles determined by the independent expert pursuant to Provision Fourth, adding the amounts corresponding to two or more maturities, if in its consideration such addition facilitates the subscription and operation of the Securities.

SEVENTH.- The Ministry may exchange the Securities for Certificates of the Federation Treasury or Government Development Bonds, in any of their modalities, when in its consideration it does not affect the stability of public finances nor the compliance with the objectives, strategies and lines of action of the National Development Financing Program. In these cases, the Ministry will determine the terms, conditions, mechanisms and other characteristics of the exchange.

EIGHTH.- All resources received by the Federal Electricity Commission from the payment of the Securities must be destined to the payment of the Obligation.

The Federal Electricity Commission may not assign, transfer, contribute, encumber, give as guarantee or in any way or modality negotiate the rights, nor the future cash flow derived from the Securities.

CHAPTER THREE

ADJUSTMENT TO THE AMOUNT OF THE SECURITIES AND THE PAYMENT MECHANISM

NINTH.- The amount of the Securities will be reduced in case that future modifications to the Collective Labor Contract or to the Work Manual of the Command Public Servants of the Federal Electricity Commission and its subsidiary productive companies, have as a direct or indirect consequence to reverse or decrease the Validated Reduction and/or increase the amount of the liability for retirement and pensions, or when any act or fact of third parties distinct from the Federal Electricity Commission and its subsidiary productive companies occurs, which has such consequence.

The Federal Electricity Commission must communicate in writing to the Ministry when any of the circumstances provided for in the previous paragraph is verified, within ten Banking Business Days following the date on which such circumstance occurs, in order to proceed to reduce the amount of the Securities up to an amount equivalent to the impact on the Validated Reduction.

For this purpose, the Federal Electricity Commission will carry out, within sixty Banking Business Days following, a review through an independent auditor in which the effect of the circumstance occurred on the amount of the Validated Reduction is proven, indicating its amount and the new payment profiles.

In case of any non-compliance by the Federal Electricity Commission with this Agreement that cannot be compensated through the adjustment mechanisms provided for in this provision or in case that it has not destined the resources for the payment of the Obligation, the Federal Electricity Commission must reimburse the Federal Government the corresponding amount.

TENTH.- Once the reduction of the amount that, in its case, proceeds in terms of Provision Ninth is operated, the Ministry will make the payment of the Securities according to the new payment profile, by credit to the bank account that the Federal Electricity Commission had notified with at least fifteen Banking Business Days in advance of the maturity date of each Security; account that must be exclusive for the receipt of said payments, as well as for the payment of the Obligation. In case of not receiving the aforementioned notification within the stated period, the Ministry will suspend the payment and retain the funds until the Federal Electricity Commission remedies the omission.

CHAPTER FOUR

FINAL PROVISION

ELEVENTH.- The Ministry will inform the Congress of the Union in the corresponding report to the first quarter of each exercise referred to in Article 9 of the Federal Public Debt Law on the payments made in accordance with these Provisions and the adjustments that, in their case, have been made.

Likewise, the Ministry will inform the Congress of the Union annually on the evolution of the Federal Government Payment Commitment, in the report corresponding to the fourth quarter of each fiscal year.

TRANSITORY

FIRST.- These Provisions will enter into force on the day of their publication in the Official Gazette of the Federation.

SECOND.- On the same date of the subscription of the Securities in terms of Provision Fifth, the Ministry must make the corresponding adjustments in the Expenditure Budget of the Federation for the fiscal year 2016 or in the Expenditure Budget of the Federation for the fiscal year 2017, as applicable, in order to recognize as an expense the amount of the obligations assumed, in accordance with Transitory Fourth of the Decree and these Provisions. For the purposes of the foregoing, the Federal Electricity Commission must request from the Federal Executive, through the Ministry of Energy, the specific budgetary mechanism.

Given in Mexico City on the 11th day of the month of November 2016. - The Secretary of Finance and Public Credit, José Antonio Meade Kuribreña. - Rubric.

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INDICATORS

Exchange Rate and Rates as of 31/08/2026

DOLLAR 17.0427
UDIS 8.810483
TIIE 28 DAYS 6.7659%
TIIE 91 DAYS 6.8033%
TIIE 182 DAYS 6.8577%
TIIE DE FONDEO 6.51%

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