Client Alert - Mexico’s Chamber of Representatives dismisses the Energy Reform (Electricity Counter-reform) and approves amendments to the Mining Law (lithium)

• Mexico’s Chamber of Representatives dismisses the bill amending the Mexican Constitution in matters of energy (particularly electricity).

• President López Obrador sent a bill that amends the Mining Law and with it “nationalize” lithium and other minerals deemed strategic.

• The bill to amend the Mining Law (sent on April 17, 2022) was approved today by the Chamber of Representatives (April 18, 2022).

1. Constitutional Reform.

Yesterday, the Chamber of Representatives discussed and approved the Opinion that contains the Draft of the Decree amending articles 4, 25, 27 and 28 of the Political Constitution of the United Mexican States, in matters of energy and access to electricity (the "“Bill”).

President López Obrador’s (“AMLO”) political party failed to obtain a qualified majority (v.gr2/3 of those present at the session) because the opposition parties (PRI, PAN, PRD, MC and some members of the PVEM) voted against the Bill. With this, the Bill was dismissed.

It is worth mentioning that the Bill is not related in any way to the implementation process of the amendments to the Electricity Industry Law, in respect of which the Mexican Supreme Court of Justice recently analyzed (and dismissed) an action of unconstitutionality against said amendments. Hare is a note regarding said amendments and the aforementioned unconstitutionality action.

2. Amendments to the Mining Law.

Just yesterday AMLO submitted to the Chamber of Representatives a Bill with a Draft Decree amending and adding various precepts of the Mining Law (the "Lithium Bill”). Hare you can consult the text in Spanish of the Lithium Bill sent by AMLO.

The main points of the Lithium Bill can be summarized as follows:

• Lithium is “recognized” as property of the Nation.

• It is important to note that the fourth paragraph of article 27 of the Political Constitution of the United Mexican States (the “CPEUM”) already establishes that the Nation has direct ownership over all natural resources and minerals;

• Activities of lithium exploration, exploitation and use are declared to be in the public interest, and therefore no concessions, permits, authorizations or contracts will be granted for such mineral.

• Regularly, declarations of public interest precede an expropriation or similar action. In this sense, it is possible that the Mexican Government intends to expropriate/take the concessions previously granted for said mineral;

• Any zones where lithium deposits are found will be considered “mining reserve zones”.

• Currently, the Executive Branch is already empowered to create such mining reserves through a Presidential Decree. This means, no action from Congress is required to make such declarations. However, mineral reserves are issued on lands not subject to concessions or subject to an entitlement;

• The creation of a public instrumentality is established in order to carry out the exploration and exploitation of lithium and other minerals deemed strategic.

• Pursuant to article 14 of the Federal Law on Public Entities, the public instrumentalities shall be created with the purposes of, among others, carrying out the activities considered strategic o a priority. However, the exploitation of minerals (including lithium) is not within the list of activities considered strategic for the Mexican State under the fourth paragraph of article 28 of the CPEUM;

• The federal government is empowered to determine whether a mineral is strategic and thus it can only be exploited by the public instrumentality.

• It is questionable whether the Federal Branch may determine that a certain mineral is deemed “strategic” notwithstanding these are not listed in article 28 of the CPEUM. However, Congress has the ability to determine which activities shall be considered to be strategic through secondary legislation; and

• It is expected that the public instrumentality will be created within 90 business days following the publication of the Decree.

Unlike the Bill (rejected yesterday), it is important to mention that the transitory provisions of the Lithium Bill neither establish nor stipulate that the mining concessions previously granted for the exploration and exploitation of lithium will be respected in their terms.

Similarly, it should be noted that the reforms to the Mining Law could contravene the provisions of the sixth paragraph of article 27 of the CPEUM. Such Constitutional provision establishes that the use and exploitation of all natural resources (including lithium) shall be carried out through concessions. However, the same provision establishes that the Federal Executive may determine the conditions and rules for the granting of such concessions.

The Lithium Bill was approved today and will be sent to the Chamber of Senators. It is expected that the Lithium Bill will be approved by the Senate in the coming days.

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If you have any questions or comments on the matter, please contact us.

This document does not constitute legal advice.