Social Impact Assessments: high standards for energy projects in Mexico

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Under the new rules of the energy reform, anyone seeking to develop an energy project in Mexico must submit a Social Impact Assessment (Evaluación de Impacto Social, EIS) for approval to the national energy agency, SENER.  The guidelines for the assessments are contained in the Hydrocarbon Law and the Electric Industry Law, passed by the Mexican Congress in August 2014, the corresponding Regulations, passed in October 2014, and Administrative Instructions published in April 2015. The content of these assessments varies somewhat for hydrocarbon and electricity projects.

The laws mentioned above specify that SENER will conduct an initial study of social conditions and will provide relevant information to the interested parties, in particular when vulnerable groups or indigenous communities are living in the project areas. SENER will also conduct public hearings and consultations in these communities in order to take their interests and concerns into account.  Energy developers must in turn provide their own assessment “identifying, characterizing, predicting and evaluating” the social impacts that could result from the proposed activities, along with mitigation measures. In the case of hydrocarbons, based on its own assessment SENER may require specific mitigation measures and include these requirements in the bidding contracts.

The Administrative Instructions by the Director General for Social Impact Assessment and Prior Consultation of SENER provide specifics on formatting and content, including the creation of baseline socioeconomic, demographic, and cultural indicators; the identification of stakeholders and a strategy to engage them; and an assessment of potential social impacts (positive and negative) with an estimate of their probability and gravity and a plan to engage the community to mitigate negative impacts. SENER has 90 days to emit an opinion on the evaluation and to make observations and recommendations to the applicant. As of December 2015, SENER had evaluated 6 assessments, 2 for hydroelectric projects and 4 for transmission lines and substations, the results of which are not public.

Complaints about impact assessments have emerged from multiple quarters. Energy companies, including Pemex, Enel Green Power, and Gas Natural Fenosa, petitioned SENER to eliminate the social impact evaluations with the argument that it is the government’s job to improve social conditions. The NGO Mexican Alliance against Fracking (Alianza Mexicana contra el fracking) does not oppose the assessments per se, but sees them as instruments of corporate control often used against the interests and preferences of the very communities they are intended to represent. Community leaders in Ixtepec, Oaxaca, on the other hand, have accused the CFE of violating its rights by not conducting an assessment as mandated by law, and excluding the community from participating in the development of a wind energy project they wish to support.

It is fair to say that an energy EIS is not a minor undertaking and that a strict interpretation of the guidelines could make it onerous to get energy projects approved. But for firms coming from the U.S. it should hardly be a surprise that there are rules as to where, when and how you can build infrastructure, even if regulation in the U.S. typically does not directly address socioeconomic impacts. In fact just last December congress passed the Fixing America’s Surface Transportation (FAST) Act, which in addition to providing funding for infrastructure projects, streamlines rules for permitting and environmental review of energy projects. It is meant to facilitate the approval of projects and make environmental review less costly and time consuming. But it also codifies into law-and therefore makes mandatory-many practices that in the past were implemented at the discretion of local governments and via administrative rulemaking. In many U.S. states public hearings are mandatory when constructing generating plants and transmission lines and can effectively delay or cancel a project.

So perhaps the regulatory hurdles in Mexico are not that different, and getting approval from the community ahead of project construction is in the best interest of energy firms. As far as can be told by the published guidelines, the process involves approval from a single federal agency within a reasonable period of time. It provides a bridge to local communities but bypasses the state level and the potential variability that a federal structure can add to the business process. It does require a higher level of involvement than perhaps many companies have had in the past, but firms will be better served by using these assessments to acquire social license to operate in a community, which is increasingly understood as the cornerstone of development.


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