Mexico: Right Of Ways' Relevance In Energy Infrastructure Projects

Historically, Mexico has been a country with changes in the legal regime of land tenure.  The legal path of real estate has, often, been shaped and developed in consonance with the different times and circumstances the country has experienced.

The legislation -based on the Mexican Revolution ideas- impregnated with social ideologies mainly looking for the equitable distribution of wealth, the protection to the peasants who worked the land, and the promotion of the agricultural industry lasted for almost a century.

The afore-mentioned social movement resulted in the creation of three different modalities in land tenure: public property, private property and social property (collective ownership known as "Ejido" and "Communites"). This "new"patrimonial land configuration remained perfectly defined within the constitutional text, however, in practical terms such social and legal provisions and the process to formalize those rights generated serious documentary and registration vices. At some point, changes in the population, land tenure and its implementation had serious inconsistencies and complexities that -some of them- prevail until now.

At early 90's, the Government approved a constitutional land tenure reform that allowed the owners of social property to lease their plots or sell. In other words, the law enabled agrarian rights owners to convert such rights into private property regulated by Civil Law and no longer Agrarian Law.

Because of Mexico's development needs in almost every area, particularly from an energy infrastructure standpoint, the Mexican State performed projects aiming to render services or to give access (i.e. electricity, water, roads/highways, railways, pipeline of hydrocarbons, etc.) without worrying much about the formality and legality to achieve the objectives. In the early 90's, the Government advertisements boasted "...electric energy coverage for 99% of the population..." The problem today is the legalization -for instance-of the rights of way to reach said figure.

The first opening to private capital in the energy sector, mainly for natural gas and liquefied petroleum gas was within the context of the free trade agreement between Canada, United States of America and Mexico (NAFTA). Along with it, came the need of new linear infrastructure. In this context, developers and owners of new projects had to think in a legal and formal strategy for right of way acquisition.

As years went by, right of way acquisition became a specialized matter. However, from the legal standpoint there was no difference or prerogative to be used as a negotiation incentive with each affected landowners where a project path would pass through. In fact, people (non-professionals in the field) performed the negotiation and sought an immediate result. Many times, it was disregarded the fact that the right of way acquisition could have a vice that at some point could put at risk the viability of the entire project. So, there are several examples of ambitious projects of public and private investment completely stopped by right of way issues.

With past experiences, investors developed at their own will their own programmes and mechanisms for right of way acquisitions. Increasingly, the right of way acquisition was done in accordance with international criteria and taking a proactive role while developing a project to attend as well surrounding communities' needs. Until the recent so-called Energy Reform, and particularly with the issuance of secondary legislation, legal procedures were established in the energy industry for the right of way acquisition.

The Energy Reform reflects Mexican Congress plurality. It is noteworthy to emphasize that particularly on the issue of right of way these shades can be seen more easily. On one hand, the law sought to protect those landowners with lower income by taking into account the social approval of the project, a government mediation, a professional appraisal made by the State, the inclusion of a social witness, etc.; and on the other hand, it is intended to give legal certainty to large investors by setting a time limit for negotiations, a judicial validation of all contracts, among other provisions.

Rights of way issues within energy project context require a high level of professional expertise. There are relevant stages of the process that has to be professionally handled and overseen such as the required formal summons and notifications to authorities at the beginning of negotiations; the negotiation itself with landowners and the validation of the process before a Federal judge.

While in appearance the new provisions may have many formal requirements in the process of right of way acquisition for energy projects, it is also true that these formalisms give certainty to investors.

The Energy Reform challenge regarding right of way issues is to match the timeline required by project developers with the legal timeline. It will be actual compliance with the new framework and to put it in practice that will end up proving its effectiveness or pending areas of opportunity.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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