Juan Torres Landa
Partner
Hogan Lovells
/
Insight

Energy Reform Opens Opportunities for Industrial Developers

Wed, 11/01/2017 - 14:11

In 2014, the Energy Reform was passed in Mexico and stateowned companies PEMEX and CFE no longer held the monopoly over the country’s oil, gas and electricity markets. In the years that followed, auctions took place for oil fields, gas fields and electricity contracts, which allowed private entities to enter the market and create the kind of competition that is expected to fuel the country’s growth for years to come.

But the benefits of the Energy Reform do not stop there. With the opening of the energy market, Juan Francisco Torres Landa, Partner at law firm Hogan Lovells, believes there will be many benefits for industrial developers and occupants of industrial real estate. “The aerospace and automotive hubs in the Bajio region are huge consumers of natural gas so there will be a need for pipelines that can provide this service effectively and reliably,” he says. The growth of the Bajio has been a huge driver of all types of infrastructure, with OEMs and other companies demanding highway expansions and more strategic logistics routes for greater connectivity to their client base. OEMs have attracted Tier 1, 2 and 3 manufacturers to the states in which they have set up shop, giving the suppliers a greater incentive to contribute to the infrastructure within the corresponding states.

Hogan Lovells represents several developers and operating industrial parks and, given the demand in the Bajio region, companies are now considering additional expansion. The law firm helps in securing the clean property titles, satisfying environmental and energy-related concerns and ensuring proper contracts for connectivity in the area.

Sometimes this can mean dealing with all three levels of government for issues related to zoning, permitting and incentives. “It is important to be very familiar with all aspects of government processes so we can offer the most comprehensive service possible to clients,” says Torres Landa. The firm was formed in 2014 when international firm Hogan Lovells merged with local legacy firm Barrera, Siqueiros y Torres Landa (BSTL), which already had 65 years of experience in the Mexican market so is well-equipped to maneuver complex governmental processes. “Because we have represented the government in many projects, we are familiar with the procurement rules and the complexities involved in getting a project successfully off the ground,” says Torres Landa.

In the more established states such as those in the Bajio, industrial real-estate developers are not being given enough incentive to develop, says Torres Landa, with most of the tax breaks directed toward the occupants of the units. That being said, states recognize the importance of industrial developers because, without their facilities, it would be almost impossible for many companies to set up operations within the state. “The original incentives for industrial developers were far more significant because the states wanted to attract companies and their investments,” he explains. “Now, this has become relatively diluted in certain states that have well-established industrial hubs and do not have an overwhelming need to attract new developers.”

But he points out that this varies greatly depending on the size of the investment. In 2015, when Toyota announced plans to build a new plant in Mexico with a US$947 million investment for the first stage alone, the Japanese OEM was immediately courted by a variety of different states. Ultimately, Toyota settled on Apaseo el Grande in Guanajuato. The state government gifted the land to the company in exchange for a long-term commitment to the state. Construction of the plant began in November 2016 and is guaranteed to create immediate construction jobs, which will then be reinforced by the direct and indirect employment offered when the facility begins operating in 2019.

“There are varying factors in the incentives provided by the individual states, including existing industry footprint, investment scale and labor availability,” Torres Landa says. In some industrial areas, there is a real lack of qualified labor and this is something he believes is important for developers to bear in mind when choosing a location for industrial infrastructure. But he does not believe that any one state is overly attractive for industrial investment because it varies according to requirements, the type of company, the investment level and the necessary transport links.