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Plant Cancellation Leads to Losses For Constellation Brands

By Gabriela Mastache | Tue, 03/24/2020 - 11:32

The public consultation that took place last weekend in the city of Mexicali led to the cancellation of a Constellation Brands brewery. The consultation was promised by President López Obrador after local groups said the project would require massive amounts of water in an area that suffers from shortages.

The cancellation comes as a bucket of cold water to a country that is already suffering from lack of investment and turbulence in financial markets. The Constellation Brands plant had a programmed investment of US$1.4 billion and had an advancement of 70 percent, which means that over US$900 million had already been invested. The economic benefit this plant would bring was expected to reach US$386 million per year starting in 2022. Moreover, the plant was expected to create almost 4,000 direct and indirect new jobs.

Only 36,781 people participated in the public consultation (around 25 percent of Mexicali’s voting list) that resulted in the cancellation of the project, which led Constellation Brands stock to fall 11.75 percent and to reach its lowest price in five years. The move has generated outrage from members of the private sector. Carlos Salazar Lomelín, President of CCE, said the decision to cancel the plant was “arbitrary, authoritarian and unilateral.” Salazar Lomelín also said that the decision was a violation of rule of law and legality and sent a message to the world that democratic rules were not respected in Mexico. COPARMEX also asked the Mexican government to rethink the decision, specially considering that the Mexican economy “is not in its best moment.”

In addition to the concerns expressed by the private sector, the Water Advisory Council said that the decision was worrisome since the plant would not impact Mexicali’s water reserve. According to the Council, there is no scientific evidence that the plant’s operation could lead to a water supply problem nor to hydric stress in the region.

Unlike the cancellation of NAIM, which also took place after a similar public consultation, the cancellation of the Constellation Brands brewery could generate a penalty for Mexico under the rules of Mexico’s free trade agreement with the US. According to article 1,110 of NAFTA, countries cannot nationalize nor expropriate in a direct or indirect manner investments from member countries, unless there is a public benefit. Should this happen, it needs to follow the rule of law. For experts, the cancellation of the plant represents an indirect expropriation once the federal government concretes its decision.

López Obrador has said that the plant can be moved to other parts of the country, just as long as locals are not opposed to it. Constellation Brands issued a statement on Tuesday saying that the company was willing to start a dialogue with Mexican authorities and that their commitment with the country and the communities in which they operate remains as strong as ever. 

The data used in this article was sourced from:  
El Economista, El Financiero, Constellation Brands
Photo by:  
Pixabay
Gabriela Mastache Gabriela Mastache Senior Journalist and Industry Analyst

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