Bottom Line

Mexican President Andrés Manuel López Obrador submitted bills to Congress intended to further curtail the rights of private investors in the mining sector and beyond.  As part of his resource nationalism agenda, on display in the energy sector at first, López Obrador has also nationalized lithium reserves and created a state‑owned company to lead development of those reserves.  The new bills, which target other minerals and concessions in the country, have been met with shock and disappointment.  If passed as drafted, and to the extent the proposed amendments are implemented to restrict vested rights arising from pre-existing mining and potentially other concessions, these bills may result in the expropriation of foreign investments and other breaches of Mexico’s obligations under applicable international investment agreements.

Legislative Process

On Tuesday March 28th, López Obrador sent to the Chamber of Deputies a bill seeking to reform the Mining Law, the National Water Law, the General Law of Ecological Equilibrium and Environmental Protection, and the General Law for Prevention and Integral Management of Waste Residues (the “Mining Bill”).  

The Mining Bill will be discussed and reviewed by four Committees in the lower house – three of them presided over by López Obrador’s party, MORENA, or allied parties – giving it a relatively easy path forward.  The Mining Bill requires a simple majority to be approved, and MORENA and its allied parties have the required votes to pass it.  Considering that the current legislative session ends on April 30th, it is possible that the bill will move fast through the Chamber of Deputies.  

In the Senate, the Mining Bill might face some opposition but probably not enough to make substantial changes as most of the commissions where it will be discussed are also presided over by MORENA or its allies.

Around the same time, López Obrador also sent to the Chamber of Deputies a bill that includes sweeping changes to administrative regulations, including rules for concessions, permits and other authorizations, which could impact the mining, infrastructure and energy sectors, among others (the “Administrative Law Bill”).  While MORENA has enough votes to pass the Administrative Law Bill as well, it may face more resistance, particularly in the Senate.

Key Provisions

Some of the main proposed amendments in the Mining Bill include the following:

  • The duration of a mining concession would be reduced from 50 to 15 years, with the possibility of a one-time 15-year extension (for a maximum 30-year concession term).  This would increase risk to mining investments and would render some projects economically unviable as the shortened time horizons may not be sufficient to justify the significant up-front investments that mining projects require.
  • Mining concessions would now be awarded only through public bidding, which could carry some benefits for transparency, or to the contrary, could create more opportunities for social actors, such as NGO’s, to oppose projects.
  • Instead of granting the right to produce various minerals available within a concession lot, concessions would only grant the right to produce the minerals specifically granted in the concession.
  • Prior to the award of mining concessions, applicants must meet additional requirements, including completion of a social-impact study, public consultations with the affected communities, and establishment of a restoration, closure and post-closure program, as well as a waste-management program.
  • Mining concessions in protected natural areas, protected water basins, or federal maritime terrestrial zones would no longer be authorized.
  • Mining concessions would be made conditional on water availability and the prior award of water concessions.  This provision seems likely to impact mining projects in northern Mexico, where water scarcity has been a prevalent issue and a major focus of López Obrador’s government.
  • Mining concessions could be revoked due to imminent ecological risks or irreversible ecological damage or to the lack of ecological risk or damage reports, environmental permits, water concession titles, waste management programs, or closure programs.
  • It would be a crime to undermine the physical safety of workers by failing to comply with the provisions of the Mining Law and its Regulations.  This provision seems aimed at further empowering the top unions in the mining sector and giving them additional leverage over mining companies. 
  • State-owned companies would enjoy priority over the private mining industry and could be granted concessions without going through a competitive process.  This provision rings familiar, as it seems to echo provisions in the energy reforms that López Obrador and his party passed earlier in his tenure.  Giving preference to state-owned actors may violate provisions of international investment agreements to which Mexico is a party, including the U.S.-Mexico-Canada Agreement (USMCA) and the Comprehensive Progressive Trans-Pacific Partnership (CPTPP).
  • A specific water-use concession for mining activities, different from the general industrial water-use concession, would be created and be subject to a maximum term of five years, as long as an extension of the relevant mining concession for an equal term is granted.
  • Water-use concessions for mining activities that require more than 30% of the yearly available volume of the relevant water basin will not be authorized.
  • Water-use concessions could be revoked for public, general, or social interest reasons, or due to non-compliance with the restoration, closure, and post-closure program.

Some of the most relevant proposed changes in the Administrative Law Bill include:

  • Giving the government more power to revoke concessions, permits, and other authorizations, allowing revocation due to supervening events affecting public, social or general interest or causing economic, social, environmental or other imbalances. 
  • Requiring all contracts with state entities to provide for early termination for public interest reasons. 
  • Establishing limits on compensation payable by the Government for expropriations in domestic and international arbitrations, a change that would run counter to Mexico’s international obligations under international investment agreements. 

Effect on Pre-existing Rights

The Mining Bill provides that pre-existing concessions shall retain the duration provided in the corresponding title.  This includes pre-existing concessions that are held by a single entity and that concentrate more than 30% of the total available water volume of a given basin or aquifer.  According to the Mining Bill, such concessions shall conclude their term in accordance with the provisions of the relevant concession title.  In contrast, the Mining Bill provides that pre-existing mining concessions located in natural reserves or granted for mercury-related mining activities would not be subject to extension.

In addition, the Mining Bill creates a transitional regime requiring:

  • holders of pre-existing concessions to provide within one year of the bill’s entry into force a letter of credit as guarantee against potential damage resulting from their activities, as well as a restoration, closure, and post-closure program for approval by the Secretariat of Environment and Natural Resources;
  • holders of pre-existing concessions to remove within one year of the bill’s entry into force all waste deposits located in natural reserves or federal maritime areas that could affect populated areas or the environment; and
  • holders of pre-existing water-use concessions carrying out mining activities to request within 90 days of the bill’s entry into force the conversion of their water‑use concession titles from general industrial water-use to the new mining water‑use.

Other effects of the proposed amendments on pre-existing rights remain unclear.  For example, the Mining Bill does not clarify whether all other pre-existing concessions would still be subject to 50-year extensions or to the new 15-year extension limit.  Also, the Mining Bill is silent on whether pre-existing concession holders would be able to continue extracting minerals that are not specifically indicated in the relevant concession title.  Moreover, the Administrative Law Bill is silent on whether any of its provisions (including the proposed amendments expanding grounds for concession revocation or early termination of contracts, as well as on limits to compensation payable by the government in domestic or international arbitrations) will apply to pre-existing concessions and other contracts with state entities.

To the extent the Mexican Government applies the proposed amendments in the Mining Bill or the Administrative Bill to restrict vested rights arising from pre-existing mining concessions, these measures may constitute unlawful expropriations and/or result in other breaches of Mexico’s obligations under applicable international investment agreements.  In that case, foreign governments and/or eligible foreign investors might be able to avail themselves of dispute-resolution mechanisms under applicable agreements, including under:

  • the USMCA (allowing claims against Mexico by state parties and by qualifying US investors);
  • the CPTPP (allowing claims against Mexico by state parties and, among others, by qualifying Australian, Canadian, Chilean, Japanese and Peruvian investors); and
  • the various bilateral investment treaties to which Mexico is a party (allowing claims, among others, by qualifying British, Chinese, Dutch, Korean, French, German, Spanish, and Swiss investors).

Investors potentially affected by the proposed amendments in this bill should analyze available protections and consider taking steps to preserve their rights under applicable international investment agreements before the bills become law.

Global Visiting Lawyer Andrés Sánchez contributed to this article.

If you have any questions concerning the material discussed in this client alert, please contact any of the authors.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Miguel Lopez Forastier Miguel Lopez Forastier

Miguel López Forastier is a partner at Covington & Burling LLP in Washington, DC, whose practice focuses on international arbitration and litigation. Mr. López Forastier has successfully represented a wide range of clients, including those in the oil and gas, mining, communications, financial…

Miguel López Forastier is a partner at Covington & Burling LLP in Washington, DC, whose practice focuses on international arbitration and litigation. Mr. López Forastier has successfully represented a wide range of clients, including those in the oil and gas, mining, communications, financial services, and food industries in both investor-State and commercial arbitrations. Recognized by Chambers Global, Chambers Latin America, and Legal 500 as a leading international arbitration lawyer, Mr. López Forastier’s work is praised by clients for his “thorough analysis, insightful advocacy, and consistently reliable judgment.” Both civil-law and common-law trained, Miguel handles contentious work in English, Spanish, and Portuguese.

Mr. López Forastier is a frequent lecturer on arbitration and international law issues at conferences and universities around the globe. He also sits as arbitrator.

Photo of Kimberly Breier Kimberly Breier

Kimberly Breier has more than 20 years of experience in foreign policy, primarily focused on Western Hemisphere affairs. Prior to joining the firm, Ms. Breier, a non-lawyer, was Assistant Secretary in the Bureau of Western Hemisphere Affairs at the U.S. Department of State.

Kimberly Breier has more than 20 years of experience in foreign policy, primarily focused on Western Hemisphere affairs. Prior to joining the firm, Ms. Breier, a non-lawyer, was Assistant Secretary in the Bureau of Western Hemisphere Affairs at the U.S. Department of State. She also served as the Western Hemisphere Member of the Policy Planning Staff.

Ms. Breier was previously the founder and Director of the U.S.-Mexico Futures Initiative, and the Deputy Director of the Americas Program at the Center for Strategic and International Studies (CSIS). She also was Vice President of a consulting firm, leading country risk assessment teams for private clients in Mexico, Argentina, and Chile.

In addition to her private sector and think tank experience, Ms. Breier served for more than a decade in the U.S. intelligence community as a political analyst and manager, primarily focused on Latin America.

From January 2005 to June 2006, Ms. Breier served at the White House in the National Security Council’s Office of Western Hemisphere Affairs, first as Director for Brazil and the Southern Cone, then as Director for Mexico and Canada, and also as an interim Director for the Andean region.

Prior to her government service, Ms. Breier was a senior fellow and director of the National Policy Association’s North American Committee—a trilateral business and labor committee with members from the United States, Canada, and Mexico.

Photo of Jay Smith Jay Smith

Jay Smith is of counsel in the Washington office. He joined the firm after several years as a professor of political science and international affairs, during which he specialized in international trade policy and international dispute settlement. His practice in the International and…

Jay Smith is of counsel in the Washington office. He joined the firm after several years as a professor of political science and international affairs, during which he specialized in international trade policy and international dispute settlement. His practice in the International and Litigation groups draws on this academic and policy experience.

He is currently helping clients develop and implement strategies with regard to the Trump Administration’s recent trade actions, including pursuing country exemptions and product exclusions to the recent steel and aluminum tariffs imposed under Section 232, and product exclusions to the proposed Section 301 tariffs.

Photo of Gerónimo Gutiérrez Fernández Gerónimo Gutiérrez Fernández

Gerónimo Gutiérrez Fernández, is a senior advisor at the firm. He provides strategic advice to businesses and governments on political risk, public affairs, communications, and business development. Gerónimo, a non-lawyer, has over 20 years of experience in senior government positions under five Mexican…

Gerónimo Gutiérrez Fernández, is a senior advisor at the firm. He provides strategic advice to businesses and governments on political risk, public affairs, communications, and business development. Gerónimo, a non-lawyer, has over 20 years of experience in senior government positions under five Mexican presidents in the areas of finance, trade, national security and diplomacy. Most recently, he served as Mexico’s Ambassador to the United States. In that position, he played a prominent role in the negotiation of the United States, Mexico and Canada Agreement (USMCA).

He previously served as Managing Director of the North American Development Bank (NADB), Deputy Secretary for Governance and Homeland Security, member of the National Security Council’s Executive Committee and, in the Foreign Ministry, as Under Secretary for Latin America and the Caribbean and Under Secretary for North America. In the latter capacity, he coordinated day-to-day trilateral and bilateral affairs with the United States and Canada. He also led negotiations for the creation of the Security and Prosperity Partnership for North America (SPP) – prelude to the present day North American Leaders Summit.

Gerónimo has also held other Mexican federal government positions in the Ministries of Economy and Treasury, the Office of the President, and Banobras.

Photo of Ricardo Chirinos Ricardo Chirinos

Ricardo Chirinos specializes in international commercial and investment arbitration, as well as public international law, and has extensive experience representing clients in high-stakes disputes relating to investments across different industry sectors, including oil and gas, mining and metals, electricity, agriculture, food retail and

Ricardo Chirinos specializes in international commercial and investment arbitration, as well as public international law, and has extensive experience representing clients in high-stakes disputes relating to investments across different industry sectors, including oil and gas, mining and metals, electricity, agriculture, food retail and distribution, forestry, paper and packaging.

Trained in both civil and common-law and qualified to practice in the United States and Venezuela, Ricardo has successfully represented clients prosecuting high-value claims in arbitral proceedings conducted in English and Spanish under the ICSID, ICSID Additional Facility, ICC and UNCITRAL rules. He also advises clients in matters relating to investment protection and restructuring, as well in the design and implementation of contingency plans to operate in hostile jurisdictions.

Ricardo is qualified to practice Venezuelan law, admitted to practice in the State of New York and licensed in the District of Columbia as a Special Legal Consultant.

Photo of Lorena Montes de Oca Lorena Montes de Oca

Lorena Montes de Oca is a policy advisor in Covington’s Public Policy Practice-Latin America through which she provides strategic advisory and regulatory advice to clients doing business across Latin America.

Lorena, a non-lawyer, has over a decade of experience in public policy and…

Lorena Montes de Oca is a policy advisor in Covington’s Public Policy Practice-Latin America through which she provides strategic advisory and regulatory advice to clients doing business across Latin America.

Lorena, a non-lawyer, has over a decade of experience in public policy and international trade. During this time, she has supported private sector companies and policymakers on a broad range of sectors such as energy, trade and investment, technology, policymaking and economic development.

In addition, Lorena has particular experience in supporting companies with complex cross border projects between the U.S. and Mexico.