Last March, Mexican President Andrés Manuel López Obrador (“AMLO”) introduced a legislative proposal known as the ‘megareforma,’ sparking fear among international investors. The proposed reform grants the public administration the authority to review, modify and nullify public concessions that are deemed not to serve the public interest.
Legal experts swiftly voiced concerns over the constitutional viability of the proposal. They warned that the reform could lead to arbitrary expropriations and ambiguous compensation measures under the vague concept of ‘public interest.’ Leading business association Coparmex expressed apprehension, predicting that the reform would discourage investment, hamper competitiveness and jeopardise the operations of many prominent companies.
On the other hand, some analysts contend that in recent years, contract litigation has caused significant financial losses for the government. They argue that the reforms could streamline the state’s acquisition of goods like medicines through international public bidding, potentially securing better prices compared to the national bidding process. The government also claims that the reform aims to curb corruption.
The current proposal seeks to modify 23 secondary laws and was submitted to the Chamber of Deputies on 24th March 2023 and could be passed by the ruling Morena party and its allies. Once discussed in the relevant committees, the reform will be submitted to the Senate before its enactment and publication, which could occur before the year’s end. However, legal challenges are likely to arise, potentially leading to delays or suspension of its application. Numerous companies, especially in the infrastructure and mining sectors, are already preparing to challenge these measures in court.
A public official at the Mexican Secretariat of Infrastructure, Communications and Transport (“SICT”) familiar with this contentious topic believes that this is part of AMLO’s discourse against the private sector but that in reality, the operations in the federal government continue to progress as concessions are being maintained and more investment is coming. “There has been more investment with the APPs,” the source continued, “it is not that easy to enforce this kind of legislation. Revocation implies that you have to compensate – the amount is calculated by considering how much the companies have invested, and how much they can be reimbursed, and whether the state has the resources to pay for it.”
“It is not that easy to enforce this kind of legislation. Revocation implies that you have to compensate…”
A public official at SICT, Mexico
The megareforma’s fate hinges on striking a balance between protecting the public interest and addressing investor concerns. The government’s desire to mitigate contract litigation and procure goods efficiently should be balanced against safeguarding property rights and promoting a stable investment climate.
The reform’s impact on infrastructure and mining projects must be thoroughly assessed. While the government aims to expedite priority projects, it should not undermine essential environmental and land use considerations. A delicate balance must be struck to ensure sustainable development and responsible resource management.
A public official at the Mexican Senate provided some updates on the contentious reforms, “The reform package promoted by AMLO for the revocation of contracts and concessions, although it is a legal reform, is stuck in Congress. And given the timing (a year and a half from the end of AMLO’s presidency), I don’t think they will manage to pass and approve it, unless AMLO becomes infatuated.”
“although it is a legal reform, it is stuck in Congress. And given the timing…, I don’t think they will manage to pass and approved it, unless AMLO becomes infatuated.”
A public official at the Mexican Senate
Our sources in Mexico believe that even it this were to happen, it would be challenged judicially, as already happened with AMLO’s attempts to eliminate the National Electoral Institute (“INE”). “The Supreme Court of Justice overturned it and the same thing would happen with this initiative. For the time being, it is very unlikely that it will pass and that it will be approved,” emphasised our sources in the Senate.
Transparent and inclusive dialogue between the government, private sector and civil society is crucial. Engaging in constructive discussions will allow stakeholders to address concerns and explore potential improvements to the proposed reform. Such collaborative efforts can lead to a more comprehensive and balanced legislative framework.
Mexico’s megareforma represents a critical juncture in balancing the interests of the public and investors. While the government seeks to streamline procurement and reduce corruption, clear and fair mechanisms must be in place to safeguard property rights and ensure investor confidence. Meaningful engagement and consideration of stakeholders’ concerns will ultimately determine the reform’s success in creating a conducive environment for both sustainable development and foreign investment in Mexico.