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Rochas: Mexican pipeline projects face months of legal talks to gain permits

World Pipelines,

Companies developing pipelines in Mexico should budget at least three to nine months to negotiate deals with landowners in order to obtain land use permits for their projects, according to Benjamín Torres-Barrón, leading partner of the Energy, Mining & Infrastructure Practice Group at Baker & McKenzie in Mexico.

Getting Mexico’s thousands of kilometers of planned pipeline projects built can take more time than originally anticipated due to persistent challenges in finding some of the landowners, reaching agreements with them and validating the deals in court.

Companies in Mexico are required to get right-of-way permissions from every landowner whose property would be crossed by a new pipeline. Reaching a deal could take months, especially if the pipeline is long and routed through ejidos areas, communal lands divided into small plots among dozens of peasants who hold surface rights to carry out their farming activities.

"We cannot give a definite deadline, but (negotiations) can last from three to nine months," said Torres-Barrón, based on his experience in this type of negotiation.

Ejidos make up about 50% of Mexico's agricultural land. Mexico had about 29 442 ejidos in 2012, mostly in the south of the country, according to the most recent data published by the country's Ministry of Agrarian, Territorial and Urban Development (Sedatu).

New rules to speed up land negotiations

The energy reform announced by the Mexican government in 2013 introduced a number of measures to speed up land rights approvals for infrastructure projects, including government intervention and reference values for land.

Once a company identifies the property it needs to obtain approval for, it has to inform the owners in writing that it plans to use the land and detail the project. It should also formally inform Mexico's Ministry of Energy (Sener) and Sedatu about the start of negotiations.

If the parties fail to reach an agreement within 180 days, the pipeline developer may request government mediation. During the 30-day mediation period, Sedatu suggests the amount of compensation that should be paid to the owners for use of the land.

If there is still no agreement after that period, the federal government can establish a legal easement, expropriating the land in favor of the investor and determining the compensation for the ejido members.

Reference value tables currently being prepared by Mexico’s Institute of Administration and Appraisals of National Assets (Indaabin) could facilitate the negotiations for land use compensation by estimating the minimum commercial value of the land, according to Indaabin President Soraya Pérez Munguía.

Project developers in a certain area can request Sener to order these benchmark land values for regions that haven't been appraised yet.

Pérez Munguía pointed out that many countries see complex and time consuming land right negotiations for infrastructure projects, and planning and knowledge of Mexico’s rules for land use will help companies hedge against project delays.

“Land approval is a very important process that takes time,” she said. “But sometimes, companies do not consider in their executive project plan enough time required for the land acquisition and approval.”

Legal questions remain

Even with the new measures in place, locating and even identifying all owners of the communal lands has been a persistent challenge in the land approval process.

“Sometimes it's hard to find them. In some areas, the owners were people who have emigrated to the US, sometimes they have died. Each particular piece of land has its own problems,” said Nicolas Borda, a Mexico-based attorney at Greenberg Traurig specialised in energy and natural resources.

Discrepancies in land ownership documents are another common problem, according to Baker & McKenzie’s Torres-Barrón.

Negotiations with the communities are not always difficult, but being prepared with a specialized team, including social workers, will help companies avoid challenges and prevent project delays.

Even with the agreement of landowners, obtaining a land use permit could take longer than expected because it is sometimes hard to prove and formalize the agreements legally, Borda said.

Judges don’t always follow the same criteria when requesting documents for land right approvals for pipeline projects, according to Borda. Some judges are not yet familiar with Mexico’s new energy legislation and sometimes delay the validation of agreements, he added.

“What we are seeing in the market is that the new legal framework has not been tested in many instances. There are still missing regulations to explain in detail how the process is going to work,” he said.

Borda said some judges require that ejido members not only sign the land rights agreement individually, but also approve it in an assembly meeting with a quorum.

The government’s new rules to accelerate land use approvals are clearly taking time to filter down to local level procedures, and developers will need to combine local diplomacy skills with legal expertise to limit the duration of the permitting phase.

Written by Anna Flávia Rochas

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