Mexico has been in the eyes of the world since the much anticipated energy reform was approved on 2013. This reform will allow the sector to exponentially grow in the coming years. But these changes not only have to do with private participation in the exploitation of energy resources, but also with the way in which these projects will be carried out from beginning to end.
In Mexico, natural resources in subsoil are property of the Nation, and private use or development may only be carried out through concessions or similar legal instruments. The State regulates natural resources as dictated by public interest.
One of these legal instruments is the Right of Way. Right of Way is the ability given to a group or individual to transit across a third party’s property: those sets of land for linear infrastructure projects located in an area of development through which energy, substances or communications are conducted.
In Mexico, the Right of Way covers the strips of land where infrastructure of state-owned companies or concessionaires passes through. The release of the Right of Way is a complex and essential legal instrument to build and develop infrastructure -roads, bridges, railways, pipelines or power transmission lines, among others. The recently approved energy reform intends to set forth the elements to streamline the Right of Way culture in a country that is rich in energy resources, and which is opening to investment from the private sector. This change in the energy paradigm of Mexico has led to two things: potential advances on one hand, and challenges on the other hand that need to be faced to ensure the development of the energy sector.
ENERGY REFORM: ADVANCES AND CHALLENGES
For the first time since 1938, the country is reopening its largely untapped oil and natural gas reserves to foreign investors and competitors. Predictably, as a result, some of the world’s largest oil companies are now preparing to invest in Mexico.
The process is scheduled to begin in earnest in mid-July 2015, with a preliminary auction of some 14 oil exploration areas in the Gulf of Mexico. New challenges on Right of Way will arise as international investors seek to develop infrastructure throughout Mexico.
We had the opportunity to talk to the founding partner of Rodríguez Dávalos Abogados (RDA) -a firm highly specialized in all aspects of energy, infrastructure and land acquisition. The company’s leading position in the industry is backed by 20 years of experience. RDA is a full-service law firm with the capability to provide end-to-end solutions over the full-life of projects from the idea and strategy stage through development, execution, and closure. RDA has structured and executed many first-of-a-kind projects, noteworthy not only for their importance in the field, but also for the innovative approach that characterizes them.
Addressing the changes brought about by the energy reforms, the firm RDA has shown unparalleled mastery of regulatory issues, providing legal advice, monitoring and management of the required permits between different governmental agencies such as The Energy Regulatory Commission, The Energy Ministry, and The Anti-trust Commission at local, state and federal levels. They also have experience in environmental permits (MIA, Risk assessment and ETJ) as well as cross-border permits (CILA), among others.
The reforms address many of the Right of Way processes and set out its legal particulars. For example, The Hydrocarbons Law establishes that hydrocarbon activities are public interest activities, and shall prevail over any other activity that requires surface or subsoil use. The consideration for the purchase, use or occupation of land, goods or rights for conducting such activities shall be negotiated directly between the owners and the developer while a governmental authority monitors at different points in the process. If at some point one of the parties decides not to cooperate or go forward there are mechanisms that allow the project to move forward again under fair conditions. Of course this could represent more paperwork and more stages, but it establishes a fair play arena that secures legal certainty.
Regarding Right of Way advances resulting from the reform, RDA founder Jesús Rodríguez Dávalos explains; “The novelty or highlight is that the authorities are involved at different stages of the process. In those moments the main idea is to bring legal certainty in fair terms for both actors. In the past, some important projects have faced hurdles regarding Right of Way issues. Some large infrastructure projects remained pending because the parties were not able to come to an agreement. (for example, a large project in Oaxaca and a CFE project in Morelos). The law now offers legal instruments to protect both parties and solve disagreements. These projects had to face the previous procedures as their only legal resource.”
RDA handles a very high percentage of the largest energy projects in Mexico on behalf their clients, the developers. Rodríguez Dávalos goes on to explain: “The great challenge is to reconcile the needs that are on both ends of a linear infrastructure project. On one hand, we have the business or entrepreneurial needs (allocating resources to a project) and on the other hand, the needs of the landowner. Mexico is a country of contrasts and the huge challenge is to put the needs of both sides in alignment.
Linear infrastructure projects like pipelines, aqueducts, power transmission lines, and highways among many others are crucial for the development of any country, but the challenge in Mexico is to develop a fair scenario for both parties.”
PROTECTING RIGHT OF WAY
Mr Rodríguez Dávalos is president of the Asociación de Derechos de Vía, AC (The Right of Way Association or ADDV). The ADDV works with and participates in coordination with The International Right of Way Association (IRWA). The ADDV is a non-profit association dedicated to the development and dissemination of everything related to Right of Way matters.
“I think that we still have to go a long way on this matter, but part of the solution is to generate a Right of Way culture in the country. I think that this association will have a proactive role.
“The Mexican Association members are also members of the IRWA, and in that sense; they leverage the long and solid experience of that organization. Potentially many Right of Way problems may arise, but it is a huge step to establish an institutionalized guild that can set forth the standards and that can deliberate the best way to move forward.”
ADDV’s main objective is the promotion of a Right of Way culture for the development of the infrastructure necessary for progress, as well as being the representative of the sector before the authorities, legislators and private entities.
A Right of Way culture is a vital component for the productive capacities of countries to access their full potential. Whether an individual or a company can have the power to move by themselves (or through an asset or estate owned by a third party), Right of Way is essential to the creation of infrastructure. Therefore, the formation of the ADDV could represent a solution to many infrastructure challenges in Mexico, given that without proper Right of Way , the best projects could remain only on paper.