Update: Mining and Water Concessions Bill Approved in Mexico

Please note: This alert will be updated periodically with new developments. This was last updated on May 19, 2023. For your convenience, any new information added to our report is highlighted.

On April 2023, the Mexican Congress approved the bill issued by the Deputies of the Morena Parliamentary Group, on mining and water matters. The bill reforms, adds, and partially repeals various provisions of the Mining Law, the National Water Law, the General Law of Ecological Balance and Environmental Protection, and the General Law for the Prevention and Integral Management of Waste, regarding concessions for mining and water.

After being approved by the Senate and the Chamber of Deputies, the Chief Executive published these law reforms in the Official Gazette of the Federation (DOF) on May 8, 2023. (Read content of the bill – Spanish)

Content of the Initiative

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 concession granting must indicate two or more minerals or substances that are susceptible to joint exploitation.
• 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, individuals may request the Mexican Geological Service to enter into a collaboration agreement to carry out the exploration of the lot in question, with a non-extendable term of up to five years.
• The person in charge of the Ministry of Economy will directly grant assignment titles to parastatal entities of the Federal Public Administration for the exploitation, exploration, benefit, use and exploitation of minerals and strategic substances or substances reserved to the state, such assignments will be indefinite.
• 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. If 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.
• In the event that during the exploitation of mining lot minerals or substances not included in the concession title and not reserved to the state or prohibited are located, the concession title may be modified to have them, upon payment of the corresponding premium, in addition to the percentage of the amount covered by the concession itself that for such purpose is determined considering the new minerals or substances.

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.
• The cost of the consultation will be covered by the individual or legal entity to whom the concession or assignment is granted.
• A consideration is to be given from concession holders for indigenous peoples and communities of at least 5 percent of the amount resulting from reducing the tax result referred to in the Income Tax Law, the amounts covered by the holder of the concession for non-deductible contributions for the purposes of such tax.
• Concessionaires who obtain income from mining activities are required, in addition to income tax and value added tax, to pay annual 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 "Water Authority" is prohibited from granting concessions on watercourses or vessels and their federal zones for the final disposal of mining waste or mining wastewater deposits.
• 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.
• Regarding the duration of the concessions and allocations, the "Water Authority" must take into consideration the conditions of the supply source in terms of quantity and quality, the priority of uses in force in the corresponding region and the growth expectations of such uses.
• In case there is a risk of water availability for human and domestic consumption, the "Water Authority" will decrease or cancel the volume of water granted.
• The concessionaires of national waters for industrial use in mining have the obligation to measure the volume of used or exploited water extracted from the basins and aquifers, as well as the water coming from the workings of the mines for industrial or service use. 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 granting of concessions in protected natural areas is prohibited.
• The concession will be cancelled if there is an imminent risk of ecological imbalance, or irreversible damage or deterioration to natural resources, cases of contamination with dangerous repercussions for ecosystems, their components, surface or subway hydrological systems, or for public health, in accordance with the provisions applicable to the matter.
• The obligation to present (on the part of the holders), prior to the granting of the corresponding title, a letter of credit, a deposit with the Treasury Department, a trust or any other suitable means to guarantee 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.
• It defines the concept of mining waste and specifies that the generation and integrated management of hazardous waste, mining waste and metallurgical waste will be regulated.
• It prohibits the final disposal of mining and metallurgical waste in national protected natural areas, wetlands, watercourses and federal zones.

Mining Workforce

• Mining concession holders must inform the Ministry of Economy of any accident that, due to the operation of the mine, has caused damage or any incident that endangers the safety of people, their property or the environment, which occurs within the mining lot within a maximum period of 72 hours, counted from the occurrence of the facts.
• 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.

Transition Provisions

• This statute became effective on May 9, 2023.
• The Chief Executive has 180 days, starting on May 9, 2023, to issue the corresponding reforms to the respective regulatory provisions.
• Exploration and exploitation concessions that were granted prior to the implementation of this executive order shall retain the duration specified in their respective titles.
• Starting from the effective date of this order, no extensions will be granted for concessions within Protected Natural Areas, including those already issued for the exploration, exploitation and utilization of mercury within the national territory.
• The procedures and administrative resources associated with mining and water activities initiated prior to the implementation will be duly processed and resolved in accordance with the prevailing provisions at the time of their initiation, as well as other pertinent regulations concerning the specific subject matter, provided that they remain compliant with the legal requirements.
• Mining concession holders are required to submit the financial instrument prescribed by the Mining Law, which serves as a guarantee for potential damages arising from mining activities. Additionally, they must seek authorization from the Ministry of the Environment and Natural Resources for the Mine Restoration, Closure and Post-closure Program within 365 calendar days from May 9, 2023.
• It is incumbent upon mining concession holders to ensure that the selection of deposit sites or locations for the final disposal of land, tailings or slag dams does not adversely impact population centers, productive areas or ecosystems.
• Holders of national water concessions engaged in mining exploration, exploitation, beneficiation and exploitation activities must promptly request a change to industrial use in mining from the relevant "Water Authority" in order to regularize their legal status within 90 calendar days following May 9, 2023.

Considerations

• The bill was approved with a modification issued 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.
• Regarding water management, the bill could 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 can offer an in-depth analysis of potential defense mechanisms and alternative approaches to this reform. In a future alert, our attorneys can also assess the deductibility of payments made to communities for income tax and mining rights purposes, as well as the reforms' implications for value-added taxation.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.