Mexico was the second Latin American country to receive threats of investor claims due to measures adopted in response to the COVID-19 crisis. In this case, for imposing restrictions on renewable energy generation due to the fall in demand for electricity caused by the pandemic.
Between 29 April and 15 May, a critical time for the country due to the rapid increase in cases of COVID-19, the government issued two resolutions to postpone when renewable-energy power plants can start to operate and restrict electricity generation by wind and solar energy facilities.
These measures mainly affect major European energy transnationals – such as the Spanish firms Iberdrola, Naturgy and Acciona, Italy’s Enel and France’s Engie – and Canadian and US corporations that have invested in Mexico’s renewable energy sector, taking advantage of highly favourable contracts. The government has argued that the changes introduced, which give it more power to control the Mexican energy market, were necessary during the pandemic and are aimed at “safeguarding energy security and independence” and guaranteeing “the power supply”, especially for essential services such as the health system.
Almost immediately, various international law firms specializing in investment disputes, such as DLA Piper, reacted by warning that “foreign investors in wind and solar electricity generation facilities in Mexico may wish to consider their rights and potential remedies under applicable investment treaties”. The well-known Spanish arbitrator Bernardo Cremades also predicted that “protection for domestic firms may lead to AMLO having to face a number of costly claims […] investors are likely to have recourse to the arbitration mechanisms provided by investment protection treaties”. The law firm Crowell & Moring declared that the measures “imperil foreign investments in renewable energy projects” and were quick to offer their specialized international arbitration services to investors in Mexico.
Some of the Spanish corporations affected by the measures have already started to prepare international arbitration claims against the Mexican government. Canadian firms, including ATCO, the largest energy infrastructure corporation in Canada, have also warned that the government’s measures could infringe NAFTA 2.0.
Three things stand out about the corporations preparing to file claims. First, several of them have ample experience of using investment arbitration against states, including Mexico itself, to obtain profits from failed investments. For example, in 2018 the Canadian firm ATCO brought a claim before the London Court of International Arbitration against the state electricity company – the Federal Electricity Commission (CFE) – alleging breach of contract when construction of the Ramal-Tula gas pipeline was suspended due to social opposition to the project. For its part, Naturgy has an ongoing claim against Colombia for US$ 1.6 billion, won US$ 2 billion in an arbitration case against Egypt and is preparing to launch new claims against Algeria and Nigeria, among others. The Spanish firm Iberdrola has also made use of investment arbitration against Bolivia and Guatemala.
Second, even though they have investments in the renewable energy sector in Mexico, most of them are large transnational corporations with portfolios of investments in fossil fuels. Moreover, in some cases such as the energy giant Iberdrola, they have been historic enemies of renewable energy.
“Behind the smokescreen of green capitalism, the major electricity firms see the renewables sector as an opportunity to diversify their capital accumulation strategies” OMAL
Third, they have an amply documented track record of human and social rights violations, which remains unpunished due to the lack of sanctions mechanisms. For example, Iberdrola, which controls a large slice of the Mexican electricity market, has been accused of corruption, criminalization and displacement of local communities, and failing to carry out free, prior and informed consultation, thus infringing ILO Convention 169. Detailed reports on the wind farms in Oaxaca show that the company has avoided paying taxes and has signed contracts detrimental to the farmers who agreed to lease their land.