Leaders and Experts Challenge the Electrical ReformBy Paloma Duran | Mon, 10/25/2021 - 07:14
Following the announcement that President López Obrador sent his electricity reform to congress, analysts and mining leaders agree this will represent a new challenge for the industry, as it discourages the arrival of potential investments and new projects, and could provokeinternational disputes.
Mining leaders have said the economic outlook for Mexico will not be favorable until the government provides certainty. " Uncertainty is the enemy for investments. For Mexico to reap the benefits of its natural resources, a higher level of policy certainty is needed at the federal level, including economic, security, permitting and energy policies," said Jody Kuzenko, CEO of Torex Gold. Meanwhile, Octavio Alvidrez, CEO of Fresnillo, said that the Mexican mining sector poses an unfavorable environment due to recent government proposals. However, he added that a real dialogue with the authorities could lead to changes in the law.
Recently, López Obrador said senators could make changes to his proposed electricity reform. However, they would need to respect its essence. “I would accept changes to the reform as long as the essence of the initiative is maintained. The essence is that the electricity industry is a strategic industry that must be owned by the nation and by all Mexicans. If they respect that, I am open to changes.” At Mexico Mining Forum, key leaders agreed that a stable communication with certain authorities has been difficult to achieve. “Some country’s administrative procedures are becoming largely unresponsive,” said Douglas Cavey, Vice President of Corporate Development at Defiance Silver.
Furthermore, the new electricity reform could lead to international disputes with Washington DC and Ottawa. Armando Ortega, Head of the Canadian Chamber of Commerce’s Mexican Mining Commission, said that the reform contradicts the USMCA, since the Mexican government cannot impose new restrictions on investment beyond those included in the agreement. "The possibility that private mining companies are allowed to explore certain metals but then be prohibited from exploitation and production is not viable," said Ortega. Gabriela Siller, an expert at Banco Base, said that with this reform , the perception of risk in the country increases. "One of the main concerns is around the USMCA for possible sanctions and international lawsuits for non-compliance," Siller said in an analysis.
Given the growing concern that already exists in the sector, the Ministry of Economy assured that it seeks to improve the situation by reactivating mining concessions as its essential to explore, which is the first step for companies to start projects. Efraín Alva Niño, Head of the Extractive Activities Coordination Unit of the Ministry of the Economy, stressed that the role of the unit is "to negotiate and facilitate the requirements of the mining industry, which are many , as well as the different problems that may arise from the legislative.” However, analysts believe that there will be no concessions unless the government believes it has greater control over the minerals. “We believe that the granting of new mining concessions will be kept to a minimum, as is happening at the moment, " said Jorge Ruiz, a lawyer for Baker McKenzie.