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Social and Environmental Due Diligence Key for Mining Projects

By Alejandro Ehrenberg | Fri, 03/27/2020 - 12:29

Q: What is the significance for the industry of the government granting a small number of concessions?

A: The current reticence to grant new concessions is a result of the history of Mexico´s mining industry. Dating back to pre-Hispanic times, the industry has brought prosperity and development, but it has also raised questions about the extent to which it respects communities and the environment. The government has decided to pause and see where we stand and where we want to go. In relation to obtaining new concessions, companies must follow the normal procedure. If the authorities give no response, the applicant can challenge the absence of response, either through an amparo proceeding or a nullity trial, to force an express response from the authority. If they do respond, but do so negatively, the applicant may appeal the decision. The government’s position is to guarantee those concessions that have already been granted and revise and maybe even revoke those that are sitting idle. In this context, it becomes even more important to thoroughly comply with all environmental and social requirements.

Q: How should companies deploy social and environmental initiatives to strengthen their projects?

A: Social and environmental programs should envelop strictly legal requirements and thus bolster the project. At Gonzalez Calvillo, we believe that companies should not only comply with Mexican legal provisions, but must also follow the highest international standards. Prominent among these are the Equator Principles. These principles lay out a risk-management framework for determining, assessing and managing environmental and social risk in project finance. Their goal is to provide a minimum standard for due diligence to support responsible decision-making related to risk. Also, corporate governance principles are essential. They strengthen a company’s performance and lay solid foundations for ethical decision-making. Even if these types of practices are not mandatory in Mexican law, they should be followed to safeguard projects. Companies should look for experts in designing and implementing consultations in accordance with the Equator Principles, as well as environmental and social impact evaluations.

Q: What elements does Gonzalez Calvillo take into account when formulating an environmental and social impact evaluation?

A: The first factor that has to be perfectly determined is the project’s land circumstances. One must know if it is in a natural protected area. The history and ownership of the land must be examined. Private, federal and ejido properties call for different legal action. Furthermore, the applicable legislation must be identified. Based on these and other factors, we undertake a mapping of authorizations, concessions, licenses and permits that have to be obtained. This varies according to the project. Some require rights of way, while others require water concessions and permits to occupy federal lands. Mapping also takes into account timing, both legal and actual. We have to bear in mind, however, that there is a lack of capacity in the government at the moment mainly due to a lack of funding and personnel, and procedures are taking longer than usual. It is essential to identify the different stakeholders that have influence in the project, in order to determine a comprehensive strategy to negotiate with them. We strongly believe that all the projects must be part of their closest communities and, vice versa, the communities must feel the projects as their own.

Q: What precedent does the Supreme Court decision to uphold the Zacatecas environmental tax set?

A: It sets a precedent that may have repercussions across the industry as a whole. It is tempting to tax mining companies, but overburdening is not conducive to long-term development. Rather than taxing an industry with an ever-increasing series of obligations, devising intelligent and fair fiscal policies may be a better course of action. To incentivize the mining industry by means of competitive tax schemes can result in a surge in the number of companies operating in Mexico. Moderately tax all these companies and you might end up collecting more than if you overburden a few companies.

Q: How should indigenous consultation be incorporated into Mexican law?

A: ILO 169 should not be incorporated into the Mining Law, or implemented by means of a particular law, either. Rather, it should be made part of the social and environmental impact evaluation. The authority that needs to decide if there are possible impacts is the environmental authority, since the environmental and social fields are always close-related. During the impact evaluation phase, a period of public consultation must be opened. It is published in the newspaper with the highest circulation in the state in which the project is developed. This is the proper time to determine if there is a need for an indigenous consultation in terms of the ILO 169. This course of action would enhance legal certainty. Having other legislation could potentially cause conflict between laws, thereby undermining legal certainty. Indigenous consultation, if relevant, should be undertaken before the environmental impact permit is granted. At present, indigenous consultation is only regulated and incorporated into Mexican law in the hydrocarbon and electricity sectors. The Ministry of Energy decides whether ILO 169 has been satisfied. There are other industries, however, like mining, that fall under ILO 169, and there is no legislation that says when, or not at all, an indigenous consultation is due. It is not clear which of all the authorities involved in the process for obtaining the different authorizations required is the one in charge of determining whether the Indigenous Consultation is needed or not.

Gonzalez Calvillo has developed proficiency in the practice of law over 30 years, with a deep knowledge of the Mexican legal ecosystem, its behavior and interaction with today’s globalized business environment. Gonzalez Calvillo is driven by the commitment to do things differently, create transformational changes and enhance the practice of law.

Alejandro Ehrenberg Alejandro Ehrenberg Journalist and Industry Analyst