1. NS4960 Spring Term 2017 Mexico: Poor Regulation Risks Investment Projects
Oxford Analytica, Mexico: Electricity Rate Increases May Harm Industry, March 1, 2017

2. Overview
Since energy reforms came into force in 2014 numerous contracts for hydrocarbons and power projects have been awarded in public tenders
However concerns over the viability of investments are growing due to a lack of regulation regarding projects’ social impacts
By February 2017 around 110 infrastructure projects are at risk due to conflicts with local communities
Of these 54 are energy projects and
31 are products of the energy reform
Other economic activities that often lead to community conflicts include mining, tourism, and transport infrastructure.

3. Social Conflicts I
Mexico has had its share of social-environmental conflicts surrounding extractive industries and infrastructure projects
However these may have been partly consequence of role that state monopolies such as Pemex and electricity monopoly CFE have played in their respective sectors
Absence of other players allowed hem to operate in environment where their operations were portrayed as part of development model pursued by the state
Allowed greater degree of public acceptance of the social and environmental impact of their operations
Relative opacity of the operations of both companies contributed to this situation.

4. Social Conflicts II However context much different where
Such activities liberalized and
May be carried out by private firms or state-owned entities in a more transparent environment
Also current climate of frustration towards
The government and
Its flagship policies such as energy reform
Has seen public scrutiny of controversial projects increase for both state and private companies

5. Social Conflicts III
As of February contracts for hydrocarbons exploration and clean power generation had been finalized since energy reform came into force
Of these 32 have involved some form of social conflict
Oaxaca state with highest number of energy-related community conflicts -- 16
Puebla – 8
Veracruz -- 6
Most involve construction of pipelines, but cross the country there are also 18 hydro, wind and solar projects suffering delays because of social and community conflicts.

6. Social Conflicts IV Legal Limitations
Mexico is a signatory of the International Labor Organization’s (ILO) Convention 169 for the protection of indigenous peoples’ rights
Establishes that residents who may be affected by an investment project have the right to prior consultation
Process to reach an agreement on how to address any detrimental impact it could have on their community
Both Hydrocarbons Law and Electricity Industry Law are explicit in need to prevent conflicts with indigenous groups
However no specific regulations to enforce the Social Impact Evaluation required by the energy reform laws.

7. Social Conflicts V
As a result communities often argue that the consultation process has not been carried out properly
Many projects held up indefinitely or have been suspended by judges citing with the social groups.
Land ownership another set of problems
Involve ejido or communal land used for agriculture
Around half of Mexico’s non-urban land consists of ejidos which are subject to special laws
Several pipeline cases where ejidos have argued procedures were not carried out properly
One major pipeline facing a five year delay

8. Social Conflicts VI
Should such complications become a regular occurrence they could seriously slow projects across country
Could significantly impact investor interest and dampen the impact of government reforms

9. Assessment I
With companies operating in a liberalized and more transparent environment community conflicts will be more evident than before
In absence of specific regulation companies may improve dialogue with communities to mitigate potential for social conflict
Major disputes could lead to national and international problems especially in cases involving foreign-owned companies.
Members of Congress have acknowledged that specific regulation to implement existing provisions to prevent social conflicts is necessary
However no significant progress is likely during current legislative term.

10. Assessment II
As a result disputes will continue to go through the court system which may cause long delays and increase the costs of the projects.