Luis Miguel Krasovsky
Managing Partner
Krasovsky Asociados

Permits And Concessions for the New Geothermal Sector

Wed, 02/24/2016 - 18:04

n the past, the government served as a guide for the private sector given its inextricable links to energy, but these traditions have been changed with the introduction of the Energy Reform. According to Luis Miguel Krasovsky, Managing Partner at Krasovsky Asociados, there are chances to integrate new practices into this fresh environment.

Krasovsky has worked with Grupo Diavaz, which was carrying out exploration and production petroleum activities, even before the Reform. When the firm learned that access to the energy market was to be made available, its members began preparing for the new opportunities and developing the required marketing strategies to reach foreign investors. Krasovsky was recently hired by an Icelandic engineering firm and world leader in geothermal energy: Mannvit. Krasovsky points out that there is little experience in geothermal energy in Mexico, despite the fact that it is poised to become one of the most important renewable energy sources because of its constant availability.

The first thing a company has to do to develop a geothermal project in Mexico is to establish itself in the country. Afterwards, it must be registered with the Ministry of Energy, a process for which the company has to demonstrate technical, juridical, and financial capabilities. In addition, interested parties have to present a technical program with scheduled goals and investment details for each stage of the exploration process. The registration is valid for eight months, and companies have to request the exploration permit two months prior to the expiry date of the registration. The exploration permit is valid for three years and may be renewed for an additional three years. If companies are interested in exploiting the reservoir, they must then request a concession six months before the exploration permit expires. Krasovsky highlights that each permit and concession is limited to areas of 150m2 or less.

“Exploitation concessions last for 30-year periods and these allow the continuous and exclusive exploitation of a geothermal reservoir. The law does not provide property rights, but instead enables operators to take full advantage of the property. Exploitation concessions can be extended for one or more additional periods of 30 years,” Krasovsky discloses. The energy generated from geothermal activities will be regulated according to the general rules contained in the Law of the Electricity Industry, and electricity can be sold directly through PPAs or other models.

The Law of Geothermal Energy states that the characteristics of aquifers close to geothermal projects must remain unaffected, providing proof to the Ministry of Energy before a concession is awarded. Therefore, professional and in-depth environmental studies have to be carried out to obtain a concession, just like anywhere else in the world. In case it is suspected that an adjacent reservoir is being affected, the Ministry of Energy will ask CONAGUA to get involved so that this entity may determine what actions are to be taken.

There are two peculiarities of the Mexican model that Krasovsky finds interesting. Firstly, the concessionaire can assign or transfer the concessions, including all the investments, as long as such transfer is authorized by the Ministry of Energy. This is something that could happen if, for example, a developer runs out of money or decides to make the investment in a different country. Secondly, if the concessionaire cannot find a company to which to transfer the rights or fails in fulfilling its obligations, the Ministry of Energy may revoke the concession and call for public bids. “Legislation is protective and covers a plethora of scenarios, which speaks of the authorities’ intent to oversee a successful geothermal energy sector,” praises Krasovsky.

Although Krasovsky is preparing for a new sector, his firm is experienced in social rights, an element highlighted in the Law of Geothermal Energy. “Our real estate division has constantly worked with cooperatives (ejidos) since it was created 30 years ago,” he comments. “Also, I take pride in the fact that Krasovsky is one of the leading law firms to have actively promoted class actions in Mexico. For example, we are working on class lawsuits in more than ten Mexican cities. Krasovsky is a firm that is sensitive to legal elements that fall under the social rights umbrella.” Krasovsky lacked strength in terms of environmental litigation a few years ago, so it made an alliance with Celis Aguilar Álvarez y Asociados, ultimately creating a mutually beneficial relationship. The firm’s extensive real estate and agrarian practice and its recent alliance gives it an ideal profile to successfully represent companies dedicated to geothermal energy generation in Mexico. Finally, Krasovsky believes the best way to become an expert is by directly participating in the energy sector. “Although our main role is as attorneys for investors, I recently decided to invest in the development of a 6MW PV park in Mexicali, Baja California,” shares Krasovsky, eagerly preparing to become a prestigious name in the country’s energy landscape.