How Free, Prior and Informed Consent in Mexico Will Make or Break the Burgeoning Hydrocarbon Sector

Abstract

Abstract Mexico has recently overhauled the hydrocarbon sector and opened it up to international oil companies (IOCs) after 76 years. The country is unique in that it has one of the highest Indigenous populations in the world at approximately 15% of the population, or 18.3 million people. Regardless of the current industry debate over what constitutes good international practice in terms of Free, Prior and Informed Consent (FPIC), IOCs will be obliged to implement expansive Indigenous peoples' engagement processes as they enter the Mexican market to not only comply with existing international and national regulations, but to mitigate risk through securing a strong Social License to Operate. The requirement of FPIC is not new; however, its application and IOCs' engagement procedures will have to: Navigate 25-year old national legislation that has been sporadically and poorly implemented, often leading to protracted and at times violent conflicts;Boost a national government that wants to be viewed by the world as addressing their legacy of human rights abuses, and by its domestic contingency as upholding its political responsibilities (SENER 2015);Restore vulnerable stakeholders' confidence in both the industry and engagement process due to an alleged legacy of negligence regarding stakeholder rights and consultations; andAlign with financial institutions' lending requirements for investors, which are becoming increasing used as a benchmark regardless of a project's borrowing status. The country and those companies exploiting its hydrocarbons need to be aligned on how FPIC should be applied in Mexico, not only to protect the Indigenous population but the future returns to the companies and the country. Developing such an engagement process has the potential to bring about widespread Indigenous support and minimize the likelihood of expensive work-stoppages or delays. This paper will review the regulatory authority of the Secretary of Energy (SENER), which is the body governing the hydrocarbon industry, and the evolution of the Indigenous engagement process. It will also summarize the recent FPIC debates within the C-Suite of major industry players and present the accepted norm for how companies generally apply FPIC principles. This paper will culminate in the proposal of new industry best practice for Indigenous peoples' engagement in Mexico incorporating FPIC.