On March 24, 2023, President Andrés Manuel López Obrador introduced a bill to reform and supplement various provisions in the Mining Law (Ley de Minería), National Waters Law (Ley de Aguas Nacionales), Ecological Balance and Environmental Protection Law (Ley General del Equilibrio Ecológico y la Protección al Ambiente), and the General Law for the Prevention and Integral Management of Waste (Ley General para la Prevención y Gestión Integral de los Residuos), specifically concerning mining and water concessions (the “Original Bill”). Following extensive discussions across various platforms, the House of Deputies (Cámara de Diputados) approved on April 20, 2023, an alternative text proposed by the MORENA deputies (the “New Bill”). The New Bill was then sent to the Senate (Senado de la República), where it was approved expeditiously on May 1, 2023. It is currently awaiting publication by the President in the Federal Official Gazette (Diario Oficial de la Federación).
Beyond the New Bill’s goals to shorten concession durations, restrict concessions to a single type of mineral, eliminate the mining industry’s preferential status and establish new grounds for concession revocation, it may also create several unintended consequences and challenges for the sector.
WHAT’S BEING PROPOSED
1. Mining Law Amendments
The New Bill introduces substantial changes to mining legislation to promote environmental protection, prioritize the rights and interests of indigenous and Afro-Mexican peoples and communities, and enforce stricter regulation of mining concessions. Key amendments include:
- Concessions granted exclusively through public tenders: The New Bill replaces the current first-come, first-served system with public tenders. In cases where indigenous or Afro-Mexican communities that inhabit the land, or a person who holds a contiguous concession, match the highest economic proposal, such communities or person will have preference to obtain the concession. In no case will the concession be granted to a person who has two or more contiguous concessions to avoid hoarding.
- Temporary occupation and constitution of easements: The New Bill grants concession holders the right to request temporary occupation or the establishment of easements on necessary lands for carrying out mining exploitation and beneficiation works instead of the right to obtain an expropriation, and therefore the concession holders would need to negotiate with land owners.
- Elimination of the preferential status of mining activities: The New Bill eliminates the preferential status of the mining concessions over any other use or exploitation of the land.
- Social and Environmental impact assessment required for each mining concession: Tender winners shall carry out the social impact study and obtain the environmental impact authorization of their mining activities on nearby populations and lands. Additionally, the Tender winners must carry out the prevention, mitigation and compensation measures indicated by the Ministry of Economy.
- Consultation process for Indigenous and Afro-Mexican peoples and communities: Before granting any mining concessions or allocations, the Ministry of Economy (Secretaría de Economía) must coordinate a free, informed, culturally appropriate and bona fide consultation process involving these communities. The person or entity requesting the mining concession or allocation shall pay the costs of this consultation.
- Land use permit agreements with indigenous or Afro-Mexican communities: If a concession is awarded for land inhabited or occupied by indigenous or Afro-Mexican communities, the concessionaire must sign an agreement with the community, and pay to such community a minimum consideration of 5% of the fiscal result of the concessionaire (according to the Income Tax Law) minus the amounts paid for non-deductible contributions for purposes of such tax.
- Reduced concession durations and limited extension opportunities: The New Bill shortens the new concessions period to 30 years, designating the initial 5 years for pre-operational activities. It permits a one-time-only 25-year extension if the owner has not incurred any of the concession’s cancellation causes. After the extension, the concessionaire may participate in a competitive bidding process for the same lot.
- Water-dependent mining concessions: The mining concession is conditioned to the availability of water and, where appropriate, to obtaining a water concession. However, the New Bill allows for the use of water from mine workings for exploitation and beneficiation of minerals or substances, as well as domestic use, upon payment of rights and notification to the National Water Commission (Comisión Nacional del Agua).
- Wastewater recycling requirement: Concession holders must implement reuse measures to achieve 60% recycling of treated wastewater at their facilities.
- Guarantees for the fulfillment of obligations: The holders of mining concessions are required to present an insurance policy, letter of credit, deposit with the Treasury of the Federation or any other financial instrument to guarantee the prevention, mitigation and compensation measures derived from the social impact assessment. The owners of current mining concessions have one year to present such financial instrument to guarantee the mining activities.
- Unlimited duration for government-held allocations of strategic minerals: Allocations for strategic minerals reserved to the state (e.g., lithium and uranium) granted by the Ministry of Economy to the Federal Public Administration Entities have an indefinite term.
- Mandatory approval from the Ministry of Economy for mining concession transfers: The Ministry of Economy shall authorize the transfer of the mining concessions. The Ministry of Economy may authorize the transfer once the assignee has paid the corresponding rights and meets the original requirements imposed on the assignor. The transfer shall be registered in the Mining Public Registry, and if the transfer does not comply with the aforementioned authorization, the assignor and assignee shall be jointly and severally liable. Any private agreement violating these prerequisites will be deemed null and void.
- New grounds for termination: The New Bill introduces new grounds for concession termination, such as (i) the omission of reporting potential damages or risks to the ecological balance, (ii) the omission to present the mine closure program, (iii) not having the corresponding water concession and (iv) in case of an imminent risk of ecological imbalance or irreversible damage to natural resources and pollution cases with dangerous repercussions for ecosystems, in which case the concessionaire will have three months to carry out any prevention or remediation activities.
- Limitation of concessions to a single mineral or substance: The New Bill stipulates that concessions will be granted for only one mineral or substance. However, if concession holders detect any unauthorized mineral or substance, they may request its inclusion in their concession title after paying a discovery premium and the percentage of the amount covered by the concession considering the new minerals or substances.
- Limitations on using concession titles as collateral: Concession holders are not allowed to use their titles as guarantees for obligations without obtaining prior approval from the Ministry of Economy (Secretaría de Economía). Such authorization is granted only if the mine is already operational, and, in case the guarantee is enforced, the new titleholder demonstrates compliance with the concessionaire requirements or, alternatively, transfers the concession rights as previously outlined.
- Addition of a chapter on industry-related crimes: The New Bill adds a chapter addressing crimes such as illegal extraction, transfer or trafficking of non-concessioned minerals, compromising worker safety, and illegal transport of mining products across national borders, further enhancing regulatory enforcement.
2. National Water Law Amendments
The New Bill also introduces significant changes to the National Water Law, with a primary focus on regulating water usage in mining activities to promote sustainable practices and reduce conflicts between mining companies and local communities. Key amendments include:
- Introduction of a water concession specifically for use in mining, with a term of 30 years: The New Bill establishes a new category of water concessions designated explicitly for mining activities, with a validity of 30 years with a possible extension of 25 years if the mining concession is still valid and the holders comply with the Mines Restauration, Closing and Post-Closing Program.
This amendment aims to provide better control over water resources by separating mining water concessions from other types of water concessions.
The limited validity of the concessions will encourage mining companies to use water resources more efficiently and sustainably.
This, in turn, could help minimize potential conflicts between mining companies and local communities over water usage. Note that the water concession titles can be revoked if any supervening event causes any social, economic or environmental imbalance.
Moreover, the New Bill includes transitional provisions granting the current holders of a water concession for industrial uses a period of 90 calendar days after the law’s entry into force for requesting the National Water Commission to change the use to “mining industrial uses.”
3. General Law of Ecological Balance and Environmental Protection Amendments
The New Bill proposes amendments to the General Law of Ecological Balance and Environmental Protection to further safeguard natural resources and the environment, emphasizing the protection of sensitive ecosystems and promoting environmentally responsible mining operations. Key amendments include:
- Prohibition on granting mining concessions in Protected Natural Areas: This amendment seeks to protect ecologically sensitive areas by prohibiting the granting of mining concessions in Protected Natural Areas (“PNAs”). PNAs are designated to conserve biodiversity, maintain ecological processes and services, and protect unique natural heritage sites.
- Requirement for maintaining a Restoration, Closure, and Post-closure Program: The New Bill mandates that mining concession holders submit to the Ministry of Environment and Natural Resources a Restoration, Closure, and Post-closure Program to ensure compliance with environmental regulations upon the termination of a mining concession for any reason. This program includes plans for site remediation, waste management, and environmental monitoring during and after the closure of mining operations.
The requirement for such a program seeks to ensure that mining companies take responsibility for the environmental impacts of their operations even after the cessation of mining activities. It promotes the long-term rehabilitation of mined areas, helping to minimize the environmental footprint of mining projects and prevent long-lasting damage to the environment and local communities.
4. General Law for the Prevention and Integral Management of Waste Amendments
The New Bill seeks to enhance the management of mining and metallurgical waste through amendments to the General Law for the Prevention and Integral Management of Waste. These amendments aim to improve waste management practices in the mining industry, reduce environmental impacts, and hold concession holders accountable for their waste management responsibilities. Key amendments include:
- Incorporation of mining and metallurgical waste as regulated objects: This amendment explicitly includes mining and metallurgical waste within the scope of regulated objects under the law.
- Authorization for federal authorities to issue regulations governing the integral management of mining and metallurgical waste: This amendment empowers federal authorities to establish regulations, norms, or provisions that govern the integral management of mining and metallurgical waste. This allows for the creation of specific guidelines and standards tailored to the unique challenges and hazards of mining waste.
- Limitations placed on the final disposal of waste: The New Bill places restrictions on the final disposal of mining and metallurgical waste, prohibiting its disposal in protected areas, wetlands, watercourses, and federal zones of national waters, as well as in locations where the waste’s trajectory could impact a population. These limitations aim to prevent the contamination of critical ecosystems and water resources and minimize potential health risks to local communities.
- Concession holders held directly responsible for waste generated by mining activities: The amendment ensures that concession holders are directly responsible for the waste generated by mining activities, regardless of whether the impact was caused by a third party who shall be jointly and severally responsible.
POSSIBLE OUTCOMES AND IMPLICATIONS
The New Bill, aimed at promoting sustainable practices and social responsibility, introduces amendments to mining and environmental laws that could potentially result in several unintended consequences. Stricter regulations concerning water concessions, land rights, and shorter concession durations may deter investment in the mining sector. The industry views the new 30-year term as inadequate for completing the exploration stage and fully exploiting large reserves, further discouraging investment.
It should be noted that the transitional provisions state that concession titles granted under the current legal framework will retain their existing conditions (e.g., term). However, extensions of concessions within PNAs or concessions for mercury exploitation will not be granted. Concession requests that were submitted but not yet granted will be dismissed once the law is published.
Regarding existing concession titles, titleholders must submit their Restoration, Closure, and Post-closure Program to the Ministry of the Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales). Titleholders are also required to ensure their deposits for final disposition do not adversely affect populations, productive areas, or the environment. If any authority determines that the deposits pose a risk to any of the above, a one-year term will be granted to avoid or mitigate the risk. New revocation causes, suspension limits, and other obligations (e.g., assignment rules) will also apply to concession titleholders granted before the New Bill's publication.
The implementation of stricter requirements and new conditions and limitations for existing mining concessions may prove problematic in certain cases. Depending on the specific circumstances, foreign investors may be entitled to rely on investment protection treaties to seek compensation for the damage caused by these measures before international arbitral tribunals. Additionally, the requirement to conduct prior consultation with local communities has frequently led to investment disputes and arbitrations in other Latin American countries.
The bill's new grounds for concession cancellation contribute to increased uncertainty, creating apprehension among both existing and potential investors. This may negatively impact the industry's overall growth and development.
If these cancellations occur, foreign investors may also rely on investment protection treaties entered into by Mexico to initiate international arbitration proceedings and seek compensation before international tribunals.
In this respect, it is crucial to consider that US investors have more limited recourse to arbitration under the USMCA compared to the now-defunct NAFTA or other investment treaties. Arbitration may still be available to them in concession cancellation or annulment cases, as direct expropriation remains, under specific conditions, one of the few grounds available for arbitration. However, their access to arbitration in respect of damages caused by the application of new requirements and conditions to existing mining concessions is more uncertain.
Foreign investors from other countries may enjoy broader protection based on bilateral investment treaties or free trade agreements, allowing them to seek compensation before international arbitral tribunals in a wider range of cases. This includes Canadian investors, who are notably active in the mining sector and can bring claims under the Trans-Pacific Partnership agreement, to which both Canada and Mexico are parties.
NAVIGATING THE CHANGING REGULATORY LANDSCAPE
Given the challenges and concerns presented by the New Bill, it is crucial for mining companies and other stakeholders to proactively prepare for potential changes. This preparation may include updating internal policies and procedures, engaging with indigenous and Afro-Mexican communities, and conducting comprehensive environmental and social impact assessments. By taking these steps, companies can adapt to the rapidly evolving regulatory landscape and ensure their operations align with the overarching objectives of the New Bill, ultimately contributing to the sustainable development of Mexico's mining sector.
Mining companies and other stakeholders must acknowledge and understand the potential challenges and uncertainties they face. It is advisable to consult with legal experts and consider alternative dispute resolution mechanisms to mitigate risks and address potential disputes. By proactively addressing these concerns, companies can continue to operate responsibly and sustainably within the new regulatory framework while safeguarding their interests and investments in the Mexican mining sector.