Yesterday, on April 20, 2023, the Mexican Plenary of the Chamber of Deputies approved, in general and in particular, the initiative presented by the Deputies of the Morena Parliamentary Group on mining and water matters. This initiative was published in the parliamentary gazette yesterday and dispensed the corresponding legislative procedures.

The bill is based on the initiative presented by the Federal Executive, on March 28, 2023, with certain modifications. The initiative was referred to the Mexican Senate for the corresponding constitutional effects. The Senate is expected to analyze, discuss and vote the bill in the ordinary session on April 25, 2023, and April 26, 2023, and subsequently sent to the Federal Executive for publication in the Official Gazette of the Federation (Diario Oficial de la Federación or DOF).

Content of the Initiative

The bill takes up practically in its entirety the Federal Executive's initiative, and reforms and modifies 25 relevant aspects. The most relevant aspects are highlighted below.

Mining Concessions and Allocations

• Mining concessions will have a duration of 30 years, of which the first five years will be for preoperational activities.
• Concessions may be extended once for a term of 25 years, when requested within two years and up to one year prior to the expiration of its term, as well as prior to the necessary authorizations and permits for its operation as well as for water concession for industrial use in mining.
• Once the extension is concluded, it will be possible to participate in the bidding for the same mining lot, in which case the highest proposal will have preference for the determination of the ruling; this concession will be granted for a non-extendable term of 25 years.
• The granting of a concession must indicate two or more minerals or substances that are susceptible to joint exploitation. In this way, legal certainty is provided considering that the combination of minerals or substances that nature itself presents can be exploited and avoids the possibility of incurring in investments that are not profitable at a later date.
• Concessions will be granted through public bidding.
• Exploration activities are reserved to the state, through exploration orders issued by the Ministry of Economy to the Mexican Geological Service or assignments to federal parastatal entities. However, some individuals may request the Mexican Geological Service to enter into a collaboration agreement under certain provisions.
• The assignments for the exploitation, exploration, benefit, use and exploitation of minerals and substances will be indefinite and not subject to competition.
• With respect to the guarantee of concessions, the concession is allowed to be granted as a guarantee with prior authorization from the Ministry of Economy, provided that the mine is already in operation. In the event that the guarantee becomes effective, the new holder of the concession proves that it meets the requirements to be a concessionaire or, in the absence thereof, assigns the rights of the concession under the terms provided by the law.
• The term granted to give notice to the Ministry of Economy to obtain the necessary authorizations, permits and concessions to start mining works is extended from three to 15 days.

Indigenous Consultations with Indigenous Peoples and Communities

• The indigenous consultation must be carried out prior to the granting of the concession title and simultaneously with the consultation required for the environmental impact assessment.
• A consideration of at least 7 percent of the profits obtained from the activity carried out under the mining concession is established for indigenous or Afro-Mexican peoples and communities or any other inhabitant of a mining concession land.
• Concessionaires who obtain income from mining activities are required, in addition to income tax and value added tax, to pay annual mining duty and special mining duty.
• Regardless of the foregoing, and of the income and value-added taxes, the holders of mining concessions will continue to pay the annual mining fee and the special mining fee.
• It establishes essential requirements that must be present for a due process of indigenous consultation.

Water Use and Development

• It is prohibited to grant concessions in areas of water availability.
• The term of the water concession for the mining industry is approved with the mining concession, in accordance with the proposal that it remains at 30 years with the possibility of an extension of 25 more years.
• Since the obligation to constantly review the measurement, use and exploitation of water is already established, it is proposed to eliminate the 30 percent concentration of water volume.
• It establishes the obligation of the concession holders to carry out the efficient use and reuse of water and, where appropriate, the restoration of water resources.
• It is allowed to obtain and use water from the workings of the mines by means of the corresponding notice and the payment of the respective right by means of the measurement carried out by the National Water Commission.
• For industrial use in mining, a monthly report of daily measurements containing chronological analyzes and water quality indicators of discharges made to surface and groundwater must be submitted to the water authority, guaranteeing their quality in accordance with the parameters established for this person establishes such authority.

Environmental Impact and Environmental Care

• The obligation to present (on the part of the holders), prior to the granting of the corresponding title, a letter of credit guaranteeing the prevention, mitigation and compensation measures derived from the social impact report.
• Before canceling concessions due to imminent risk of ecological imbalance or irreversible damage to natural resources, the holder of the concession has the opportunity to carry out prevention or remediation actions within a term of three months for such purposes. Under the understanding that, if this is not done, the concession will be suspended for a term of six months, during which such actions must be carried out and, if not, the concession will be cancelled.

Mining Workforce

• The report to be provided by the holders of mining concessions on accidents or incidents that occur within a mining lot, must be only those that represent a serious or imminent risk (in accordance with the protection of rights recognized by the Political Constitution of the United Mexican States).
• The conduct of modifying the location or damaging the marker or sign that serves to identify the starting point of a mining lot is established as an administrative infraction.

Considerations

• The initiative was approved with a modification presented by Deputy Irma Juan Carlos to establish that the cost of the consultation must be covered by the physical or legal person who requests the concession or assignment instead of the person to whom the concession is granted.
• It is expected that this bill will be dispensed with the corresponding legislative procedures and will be approved by the plenary session of the Chamber of Senators next week.
• Regarding water management, the initiative will give rise to discretionary decisions by the National Water Commission.
• The mining concessions could be at risk considering that they can be canceled "due to supervening events or acts of public, general or social interest, or that cause some type of economic, social, environmental or any other type of imbalance", since the criteria is ambiguous and conform to what the authority considers to be an imbalance.
• Article 14 of the Mexican Constitution establishes that no law will have retroactive effects to the detriment of any person.
• Holland & Knight attorneys will provide an analysis of possible defense mechanisms and alternatives to this reform, as well as the analysis of the deductibility of the payment to the communities for purposes of both income tax and mining rights, as well as its impact on tax matters to the added value, in a future alert.