Unprecedented, claims to Mexico if the electricity reform passes: ICC

If the electricity counter-reform of the Moreno government is approved, Mexico will multiply the risk of facing international litigation for millionaire claims “never seen before”, with which it would face payment demands of up to 20 times on the investment made by national and foreign businessmen in electrical projects (which are currently estimated at 44,000 million dollars), warned the International Chamber of Commerce Mexico (ICC Mexico).

Despite the fact that the director of the Federal Electricity Commission (CFE), Manuel Bartlett, said that the Mexican state will not compensate private companies for suspending their operations in electricity projects as part of a constitutional amendment, Gabriela Álvarez Ávila, president of the Committee of Arbitration of the international organization, responded that there is a direct expropriation and it is contemplated in the international treaties signed by Mexico, as part of the investor’s claim for damages.

He alerted the Mexican Congress that an international arbitration procedure lasts four years on average and “the most certain thing is that it will not be up to this government to deal with international awards”, but it will be the Mexicans who will bear the millionaire cost of the litigation, he stated.

In a virtual press conference, the ICC specialist explained: “a company may have invested 15 million dollars, but by filing the invested claim plus the expected profits, the amount can be up to 200 million. And the decision of the courts could be reduced by between 70 and 100 million dollars, depending on the energy project ”.

The president of the ICC Arbitration Committee stressed that there are cases of complaints in the energy sector, for example, Russia faces an arbitration of 50,000 million dollars. “Investment arbitrations represent billions of dollars in awards.”

“To abruptly change the rules of the game and destroy certain rights acquired by investors, they can claim compensation before international bodies… because although there is no expropriation decree or the adoption of an expropriation decree as such is not being proposed, The effect of these measures is similar to an expropriation and in that sense foreign investors can raise the expropriation and the consequent compensation for the expropriation, ”Álvarez said.

The reform of articles 25, 27 and 28 of the Constitution and nine transitory ones, violates the rule of law by violating constitutional principles of universality, interdependence, indivisibility and progression in the matter of human rights; It also represents a broader transformation of the laws that involves the country’s electricity, hydrocarbons, lithium and natural resources sectors, as well as aspects of the energy transition that are not limited to the electricity sector.

From the perspective of the International Chamber of Commerce, Mexico runs the risk of going back, at least, four decades in the generation of electricity, with the consequent economic and social costs.

It will also face international reputation problems and inject uncertainty, by putting at risk the confidence of foreign direct investment in Mexico and the consequent isolation of our country from environmental standards in the world.

“The ICC Mexico makes an attentive and respectful call to legislators to put a stop to the constitutional reform initiative sent from the Presidency of the Republic, because it means not only a simple modification to the Magna Carta, but also to remove from Mexico the vision of modernity that little by little had been registered in recent years and in which the foundations had been laid to enter the First World in aspects of environmental management ”.

Indirect expropriation

• The 4Q electricity reform initiative provides for the cancellation of all electricity generation permits and contracts with private parties.

• Among these are permits granted by the CRE, direct electricity coverage contracts with generators, contracts with generators and consumers, contracts for the sale of Clean Energy Certificates and coverage contracts between generators, and the CFE (independent energy producers and long-term auctions).

• The cancellation of contracts and permits implies the extinction of the conditions that allowed the generation assets that supported them to be profitable, which implies an indirect expropriation, in the terms established by various commercial agreements signed by Mexico, such as the T-MEC.

• The electricity reform initiative foresees that private companies will be allowed to produce up to 46% of the electricity in the national system, which will be acquired exclusively by the CFE for resale.

• The project does not contemplate the mechanisms through which the CFE will buy the energy produced by the private companies, which adds more uncertainty to the sector.

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