Unsteady Rules Put Community Acceptance of Projects at Risk

Q: How has Vera & Asociados developed over the past year?

A: First, we had to adapt our services to the needs of our clients. However, many projects were slowed down because of new policies enforced by the Mexican government, especially in the energy sector. Other tourism and infrastructure projects have been steadily making progress, despite the challenges brought on by the pandemic. In any case, we have been involved in various projects that have kept us busy, in both the public and private sectors.

Q: What is your assessment of recent governmental measures and the challenges Mexico faces as a result?

A: The new policies on energy, mining, communications and other areas have forced our clients to take legal action. The challenge has been to move from lobbying and strategic thinking to litigation. Our litigation department increased twofold, and we now have two partners devoted to litigating cases related to permitting for natural gas pipelines and liquefaction and compression stations, electricity substations and downstream projects. We have secured permits in the north of the country and in the Yucatan peninsula, as well as clean energy generation permits for the Baja California peninsula, among others.

One of the main challenges has been community acceptance of projects. The lack of clear rules regarding private investment has resulted in challenges and the cancellation of ongoing projects. Such was the case with Mexicali’s Constellation Brands plant, which is a well-known example. The legal certainties that had been given to private investments through legal means have been destroyed by the government. Situations like these are not normal and were never considered part of a standard decision-making process. Even though these challenges affect investment, companies for the most part refuse to take legal action because they want to maintain a good relationship. In cases like these, companies prefer to avoid litigation unless they are forced to, as we have seen in the energy sector. For instance, during a mining industry meeting sponsored by private companies and the government, nobody would accept the fact that social licensing was a major problem for this type of industry. Just in the past quarter alone, communities have stopped a number of companies’ activities, even after permits had been granted. This is true for every project we analyze in other sectors as well. The challenge is to maintain social licensing throughout the construction and operation of a project, and not just while obtaining the permits.

Q: How does social licensing translate specifically to the energy sector?

A: Pipelines and transmission lines span across hundreds, sometimes even thousands of kilometers, which may have several landowners. Sometimes land is privately owned, designated as federal property or owned by communities. It has proven to be very difficult to complete certain projects where you have a power plant connected through pipelines or transmission lines. People tend to think this connection is not as important as the power plant itself. Now, due to social issues, we are faced with projects that have slowed down significantly. The understanding was that as long as developers paid the compensation demanded from those already using the land, there would be no problems. This has turned out to be wrong. For instance, some communities have opposed the development of projects on the basis of various complaints, even though they are not the landowners. The social issues and the land-use issues resulting from a lack of registration offices are strong barriers for projects to overcome. As an example, parts of Baja California or Quintana Roo were incorporated into the Mexican territory just 60 years ago, so a great deal of information was in the hands of other entities, making it difficult to obtain title insurance. As a result, some ministries would not consider valid public deeds from Baja California.

Q: How are these and other recent developments impacting the Energy Reform?

A: The government has implemented a number of administrative measures that have been challenged in court. This shows that the autonomous regulatory entities, such as CRE and CENACE, are no longer autonomous. This lack of autonomy is affecting the Energy Reform. Recently, President López Obrador stated that he would not change his energy policy because it is benefitting PEMEX and CFE. He is not looking for a level playing field. He wants state companies to be treated differently. Many industry participants were hoping that the election of Joe Biden and the USMCA would be enough for the Mexican government to modify its position. Therefore, I do not know if litigation alone will be enough to stop the process of the government to reverse the Energy Reform and to stop the delays in permitting along with other measures. However, despite what the president says, we do depend on US cooperation. Energy is becoming a key topic, so I do have hope that it will eventually shift Mexican policy to avoid USMCA penalties.

Q: Where could renewable energy companies find attractive opportunities in this environment?

A: The area of distributed generation (DG) has been growing steadily because of the current government measures, which have not yet affected this segment. Therefore, we can expect a growth of perhaps 700MW per year. However, like other energy projects, DG still faces issues regarding the social environment, noise and water availability, among others. We still need to address these issues, as well as incentives such as a carbon tax and storage.

As long as the government considers everyone else as a competitor and a missed opportunity to sell CFE’s energy, competition and an open market in the energy sector will be difficult to achieve. Nevertheless, not all of the country is connected to the grid because it does not always have sufficient capacity. The projects we examine are, therefore, located in the peninsulas, where there are arguments for making a mini-grid work, or in places where CFE cannot supply sufficient energy to meet demand. However, these proposals are still new and are developing.

Q: What are your priorities for 2021?
A: We have restructured the firm somewhat to bring it out of its comfort zone, which entailed lobbying and acting as permitting facilitators. Now, strategic thinking and activity on the academic front has become increasingly important. We renovated one office to be compatible with what we wanted to do in the beginning, which is to be a key player in the environmental and energy arena. Our goal is to advance to our reinvention and not remain in our comfort zones. After shifting our direction into a more strategic mindset, we then signed several proposals with very high-profile companies. We want to have a stronger presence in the social, environmental and technical areas, not only for licensing but also being present throughout the implementation of projects. This is a good challenge and it aligns with what we want to do. We are prepared to engage in these activities.

Vera & Asociados is a leading firm in the application of best practices related to social and environmental impact assessments, while also delivering litigation services. Founder and Partner Luis Vera is a former director of ASEA.