Gabino Fraga
Founder and Partner
Grupo GAP
/
View from the Top

Regulatory Sea Change Looms: Miners Must Be Ready

By Alejandro Ehrenberg | Mon, 08/03/2020 - 11:26

Q: Mexico’s Supreme Court has ordered Congress to create a law to regulate indigenous and Afro-Mexican consultation. What effects will this have on the mining industry?

A: In June 2020, Supreme Court Minister Fernando Franco ordered Congress to begin work on a general consultation law in the upcoming legislative period. There is no deadline for the law to be published. The legal basis for this goes back to 1991, when ILO 169 went into effect in Mexico. It is considered an overdue issue for the country. Minister Franco’s decision opens an opportunity to finally reach a solution. 

The consultation law has to be worked out carefully to avoid contradictions and bottlenecks. One important aspect is that many administrative acts that require a consultation often converge in a single project. A mining project needs a mining concession, infrastructure and environmental permits, water concessions, and more. If these administrative duties impact an indigenous or Afro-Mexican community, then how many consultations will have to take place? At which point in the project will they have to happen? These questions must be answered coherently, or a chaotic situation may ensue. Congress has to produce a general consultation law, but every authority involved in a project, including the Mining Directorate, the Ministry of Economy and SEMARNAT, has to have a separate regulation that fits well with the overall process.

Q: What can miners do to achieve a general consultation law that benefits companies and mining communities?

A: It is necessary that CAMIMEX, Mexico’s foremost mining association, is fully aware of what is at stake. CAMIMEX has to articulate a position on the matter and communicate it effectively to Congress in order for the consultation law to be consistent and appropriate to the industry’s reality and specific conditions. It is especially important to bear in mind that the Mexican state, and not the holder of the mining concession, will eventually have to do the consultation. Thus, the scope of action for mining companies will be limited with respect to consultations. But the viability of their operation may be compromised due to any deficiency in the consultation. It is therefore of the utmost importance to make sure that the consultation law is designed in such a way that projects that fulfil social and environmental standards are not unnecessarily hampered.

Q: How might a change in regulations pertaining to water use impact Mexico’s mining industry?

A: There is an initiative in Congress to change the Water Law. First, it seeks to reduce the life span of water concessions. Second, it aims to change the procedure for the state to revoke a concession.

While it is laudable that the authorities endeavor to guarantee a more rational use of the nation’s resources, the current proposal is problematic. Mining projects involve long-term investments. In a very good scenario, seven years may elapse from the exploration to the production stage. Access to water is essential to the success of the project. It has to be guaranteed from the exploration phase. This is why present water concessions are 10 to 15 years. Nevertheless, it has been proposed that water concessions be reduced to three years. This would reduce certainty around projects, heightening risk and dissuading investment. 

Moreover, the criteria and methods to revoke concessions is far from optimal. The criteria listed in the proposition include hoarding and polluting water. Also, they include corruption at the time when the concession was granted. Finally, if it is judged that the concession damages the public interest or if it affects the rights of indigenous or Afro-Mexican peoples, it can be revoked. The main problem is that all of these criteria are open to interpretation. Furthermore, in all cases, Mexico´s president is entitled to revoke the concession and recover the water for the country. Therefore, the door is opened for the government to act arbitrarily. That goes against the rule of law and makes investing in Mexico less appealing. Rather, water concessions should be based on thorough technical and social due-diligences that ensures no environmental or human rights violations are committed. It should not be a matter left to the discretion of the executive branch of government.

Q: How will COVID-19 change community engagement practices?

A: As a result of the pandemic, mining companies will have to include health in their social programs. They will have to go beyond reactive actions and forage into preventive medicine. Prevention helps to prevent crises and makes costs more manageable when situations do escalate.

Looking out for the health of communities is good in itself but it can become financially burdensome. If maintaining a clinic is costly, carrying out COVID-19 tests regularly and expanding services to cope with the pandemic can become too expensive. Companies are already taking on costs in security and social matters that local, state and federal authorities have neglected. The ideal is to establish a collaboration between the authorities and companies. 

Given that mining companies will have to include health in their community engagement programs, it is important that they promise only what they can actually deliver when negotiations for land take place. An unfulfilled promise can become a social risk.

Grupo GAP provides solutions, legal and social advice for mining, oil and energy projects. Since 1992, it has worked on agrarian and social issues. Grupo GAP is dedicated to finding solutions for the coexistence between mega projects and communities.

Alejandro Ehrenberg Alejandro Ehrenberg Journalist and Industry Analyst

MORE BY THE AUTHOR