This is our last post on our series of Bills Pending Discussion in Mexico’s Congress that could impact the Mining Industry. In part 1 we discussed the 5 bills which introduce changes to environmental laws. In part 2 we discussed the bills dealing with indigenous communities and public consultations. In this post, we will address a variety of topics, including proposed changes to the tax laws, the Mexican Geological Service, liability and disaster insurance, judicial review, and the Mining Fund.
Pre-operational expenditures Bill
On April 25th, 2019, Congressional Deputy Madeleine Bonnafoux Alcaraz (PAN), sponsored a bill proposing changes to the Income Tax Law (Ley del Impuesto Sobre la Renta, ISR), to allow mining operations to deduct pre-operational expenditures in the year in which they are made. The bill is still pending discussion.
Bill proposed by Senator Napoleon Gomez Urrutia
The second bill on our list was sponsored by Senator Napoleon Gomez Urrutia, also known by the nickname “Napo” or “Napito”. Senator Gomez Urrutia is more commonly known for having held the title of Secretary-General of the “National Union of Mining, Metallurgical, Iron and Steel Workers of the Mexican Republic”, the country’s largest Mining Labor Union in the early 2000s. He gained notoriety after being investigated by PGR for alleged multimillion-dollar fraud and exiling himself for several years in Canada after being exonerated. His proximity to Union workers and his controversial stances on mining has made him the focus of several news outlets.
Senator Gomez Urrutia’s bill was introduced on March 25th, 2019. It proposes that representatives of civil society gain the right to vote within the Mexican Geological Services’ Governing Body. The Mexican Geological Service (Servicio Geológico Mexicano or SGM) is a quasi-independent government organization within the Sub-secretary of Mining. Its purpose is to promote the best use of mineral resources and generate the country’s basic geological information. Among others, it has the authority to locate exploration targets and propose areas to put out to tender.
Currently, up to three representatives of private-sector mining organizations, one mining union representative, and one representative of social mining organizations participate in the SGM’s reunions as advisors. If the bill were to pass, these social representatives would gain the right to vote and would be designated in the following manner: i) the private sector representative would be chosen based on the recommendation made by the Mexican Mining Chamber (CAMIMEX); ii) the union representative would be designated based on the union with the most members, and iii) the social mining representative would be chosen based on the organization with the largest national coverage.
It is important to note that Senator Gomez Urrutia has not been shy to express his stance on the need to tighten regulations, especially on the labor and environmental front. It is unclear, however, how this Bill would impact the industry. The SGM is mostly a scientific organization and is not considered politically motivated. This Bill, however, could have the potential to disrupt voting dynamics within the SGM.
Liability Insurance and Disaster Fund Bill
On October 23rd, 2018, Congressional Deputy Victor Adolfo Mojica Wences sponsored a Bill that would require mining operations to have liability insurance covering damages to surrounding communities. The insurance would have to cover damages to the communities’ residents, their assets and the environment. The Bill also proposes creating a fund financed by 2% of utilities to cover damages in case of disasters caused by mining activities.
Judicial Review of Environmental, Forest, Mining and National Water Cases Bill
The next bill on our list was sponsored by Senator Roberto Juan Moya (PAN) on March 5th, 2019. The bill proposes changes to the Law of Federal Administrative Procedure. The bill would allow authorities to appeal environmental, forest, mining and national water cases. Current law limits appellate review to matters concerning tax, foreign trade and the responsibility of government officials. Any other case must pass an “importance and transcendence” test to apply for review. With this change, all matters concerning environmental, forest, mining and national water cases would be excluded from this test, which would increase the number of appeals.
Mining Fund Bills
The last two bills on our list introduce changes to the Fund for Sustainable Regional Development of the Mining States and Municipalities, more commonly known as the Mining Fund.
What is the Mining Fund?
The Mining Fund was created in 2014 with the establishment of the Mining duty, which stipulates a 7.5% duty on utilities and a 0.5% duty on income from the sale of gold, silver, and platinum. The Fund’s purpose is “physical investment with a positive social, environmental and urban development impact”. The fund currently allocates 62.5% of its money to mining communities and 37.5% to the corresponding states. Since its inception in 2014, the fund has steadily grown from a little over 2 billion Mexican Pesos (about 157 million US Dollars) to almost 3.75 billion Mexican Pesos (about 197 million US Dollars) in 2017. [^1]
The first bill was sponsored by Senator Minerva Hernández Ramos (PAN) on February 28th, 2019. The bill proposes changes to the fund’s allocation. It proposes distributing 40% to the mining communities, 20% to other communities, and 40% to the state.
The second bill was sponsored by Senator Geovanna del Carmen Bañuelos de la Torre (PT) on the 4th of December, 2018. Like the previous bill, it proposes changes to the way money is allocated. It proposes distributing 50% to the mining communities, 49% to the state, and 1% for budgetary purposes. Additionally, it proposes the need for state governments to publish periodically how the money was spent.
Both bills suggest reducing the amount allocated to mining communities in favor of non-mining communities. And although the mining fund does not directly impact mining operations’ business, it greatly impacts peoples’ perception of mining, which ultimately affects business.
Bills to regulate the mining industry have increased in this legislative term. It is interesting to note that only a quarter of those bills were introduced by the governing party (MORENA), with another quarter sponsored by members of the National Action Party (PAN). MORENA holds a majority in both chambers, with an absolute majority in the Chamber of Deputies and a relative majority (plurality) in the Senate. This means that MORENA could easily pass all its sponsored bills in the Chamber of Deputies, but not in the Senate, where it would require at least 6 more votes. This, however, would be easily achieved with the support of the Senators from the Labor Party (PT) and Social Encounter Party (PES), whom it bears repeating, benefitted from an alliance with MORENA in the past election.
It will be interesting to see how many of these bills make it past the first round of discussions. As we noted in the introduction to this series, most of the bills focus on one of three issues: environmental protection, rights of indigenous communities or public consultations. This doesn’t surprise us, as these are the same topics we have seen come up again and again in the Courts and the news. We will follow the development of these bills and post updates as they become available.
[^1]: Secretaría de Desarrollo Agrario, Territorial y Urbano. “FONDO MINERO – Fondo Para El Desarrollo Regional Sustentable De Estado y Municipios Mineros.” www.gob.mx, 4 Feb. 2016, www.gob.mx/sedatu/acciones-y-programas/fondo-minero-para-el-desarrollo-regional-sustentable.
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