The Social Ingredient, Key to Infrastructure Projects

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The Social Ingredient, Key to Infrastructure Projects

By Juan Carlos Machorro*

 

There are a great number of cases in different jurisdictions (certainly along the Latin American region) where infrastructure projects either work out with absolute success due to the commitment of the communities around the project or completely fail due to the lack of it. The difference between success and failure is the social engagement. Successful projects engage their communities. When the community sees the value of a project, in terms of benefits to the community, it becomes also a duty to make things work out. Projects that do not involve their communities have a much higher risk to fail because of the strong negative mindset of its detractors, and this, sadly, in detriment of all stakeholders - financial advisors, off takers, government authorities (in three levels) and last but certainly not least, the community itself. A less informed but strong-minded community can become a very strong detractor of the project. This same community, if well informed and engaged, can also become a defender of the project itself, and pillar of social and economic development of the region.

 

This phenomenon is present in several types of infrastructure along the region, including toll road, energy, water and mining projects, among others.

 

The matter is not an alien to the legal framework. There are international treaties, laws and regulations, and administrative rules which focus on the matter.

 

The Mexican Constitution enshrines the criteria of social equity, productivity and sustainability, to be observed by entities in both social and private sectors.

 

The Indigenous and Tribal Peoples Convention, 1989 is an International Labour Organization Convention, also known as ILO-convention 169, or C169. It is the major binding international convention concerning indigenous peoples, and a forerunner of the Declaration on the Rights of Indigenous Peoples, the only international treaty open for ratification that deals exclusively with the rights of these peoples. The ILO’s Decent Work Agenda , with gender equality and non-discrimination  as a cross-cutting concern, serves as a framework for indigenous and tribal peoples’ empowerment. Access to decent work enables indigenous women and men to harness their potential as change agents in poverty reduction, sustainable development and climate change action. It recognizes the right of indigenous and tribal people to decide their priorities in projects’ development process if a project affects their lives, beliefs, institutions or spiritual well-being. It also concerns the lands occupied by communities and is meant for to control, as far as possible, their own economic, social and cultural development.

 

The Convention also incorporates the obligation of Governments to consult communities, through appropriate procedures, whenever legislative or administrative measures are likely to affect them directly. This obligation led to the creation of a protocol for implementation of consultations. 


It has recently been estimated that more than 100 infrastructure projects are at risk in Mexico due to social conflicts, half of those projects corresponding to the energy sector.

 

Hydrocarbons and electric energy laws and regulations, both include provisions whereby Mexican authorities are required to comply with sustainability and respect for human rights principles, for indigenous communities, aimed to develop projects in the energy sector. Developers are required to prepare and file an evaluation of the social impact of each project, identifying communities located in the area of influence of the project, also requiring the identification, characterization, prediction and assessment of potential consequences for the community, steps to mitigate negative effects, and social management plans.

 

The Mexican Secretariat of Energy (Secretaría de Energía or SE) must inform interested parties about the presence of vulnerable social groups in order to implement necessary actions to safeguard their rights in areas where activities are to be carried out under oil exploration and extraction contracts. Likewise, in order to take into account the rights and interests of the communities and indigenous people involved, SE itself, in coordination with the Secretariat of the Interior (Secretaría de Gobernación or SG) and other government agencies1, must carry out free and informed public consultation procedures with the community.


The regulation incorporates concepts such as the area of influence of a project (core area and areas of direct and indirect influence) and the obligation of interested parties to provide an evaluation of the social impact of the project, incorporating specific characteristics and variables of the community involved.3

 

The legal framework also includes provisions related to the considerations to be paid, and the terms and conditions for the use, enjoyment or affectation of lands, goods or rights necessary to carry out exploration and extraction activities.  Owners of land are entitled to receive a consideration for the use thereof covering the payment of potential damages. In the case of hydrocarbon extraction projects, a percentage of the project’s revenue must be allocated with land owners.4


All these procedures and requirements should not be set aside or deemed as merely another point in the agenda or a closing checklist. There are in fact essential and useful elements and tools providing a unique opportunity to get to know the community where a project is to be developed, to achieve social management that is attuned with the project and its environment, and of course to maintain long lasting relationships truly engaging the community during the life of the project, from planning, construction, and operation to decommissioning of the project.


1 SE, with the favorable opinion of the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, or SHCP), is also entitled to provide, within terms and conditions applying in a public tender, amounts to be allocated by a contractor for human and sustainable development of the community, for health, education, labor matters, among others.

2 The publication of the decree that implements administrative provisions on social impact for energy projects (for hydrocarbons and electric projects) [2] is still pending.

3 Which include an analysis of relations between socio-demographic, socio-economic and socio-cultural indicators and variables, including population size, structure and growth; population distribution; migration; home and family aspects; education; health; work and working conditions; social security; housing; security and law enforcement; income level and distribution; main activities of the primary, secondary and tertiary sector, among others.

4 Percentage that cannot be less than 0.5% nor more than 3% for non-associated natural gas; and not less than 0.5% nor more than 2% in other cases, for the benefit of land/right owners. Payment can be made in cash and, as the case may be, through commitments to carry out development works in benefit of the community.


*Juan Carlos Machorro is a partner in the Corporate Governance, Energy & Gas, Mergers, Acquisitions, & Joint Ventures, Banking, Aviation and Maritime, in the Mexico City office of Santamarina & Steta, LLP. Mr. Machorro can be contacted at jmachorro@s-s.mx 

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Mexico DF,
Wednesday, April 26, 2017
Environmental Law / Protected Species, Energy and Natural Resources Law