Mexico: Public-Private Partnerships In Mexico / Lithium
September 2022 / Diego Latorre – Sean McCoy
Mexico has officially nationalized its Lithium mining industry as a result of the amendments to the Mining Act proposed by President Andres Manuel Lopez Obrador, which gives to the Mexican State exclusive rights over the battery metal. The reform elevates lithium to the category of “strategic mineral,” declaring the exploration, exploitation, and use of Lithium to be the exclusive right of the Mexican State. For these purposes, it has been created a state- owned company to mine the metal. The company is called “Litio para Mexico” (“Lithium for Mexico”) and will begin operations within the next six months. The company will start mining in the Northern State of Sonora, where the field called “La Ventana” is located, which spot has been considered the largest single deposit in the world. This is not the only discovery site in Mexico. According to market research firm BNamericas, Mexico has around 18 discovery sites in the states of Baja California Sur, Coahuila, San Luis Potosí, and Zacatecas, 12 of which are undeveloped sites.
Simultaneously, the Government has acknowledged the need for fresh investment, and the public-private partnership scheme has been chosen as the model for lithium exploitation projects in Mexico, a big bet for the coming years.
Mexican Law promotes flexible contractual mechanisms with an even distribution of risks and clarity about the rights and obligations of the parties involved in a private-public partnership contract. All rights and obligations regarding the execution of the project may be allocated to the government body, the private party, or both. Once the contract is executed, amendments to the contract are possible as long as they do not represent an unbalanced transfer of risk.
Normally, Public-Private Partnerships (“PPP”) contracts in Mexico include the following provisions: (i) adjustments to agreed compensation; (ii) additional income generators and their purpose; (iii) subcontracting rights for the project and services; (iv) transfer of rights; (v) complementary activities to be performed at the end of the contract; and (vi) the final destiny of the goods or inventory at the end of the contract. The PPP’s contracts are formalized through a service development contract and can be complemented, if necessary, with a construction execution contract, which will include any necessary concessions, rights of way, permits, and licenses to be granted by the contracting Government body. If the private party or developer fails to meet his obligations and/or endangers the development of the project, the contracting Government body may intervene. The law allows early termination of PPP’s contracts. However, the parties must agree on the termination provisions and, of course, must be included within the service development contract, which will provide all legal principles, terms, and conditions under which either party may terminate the contract.
Recent years have seen the government of Mexico allocate greater proportions of its budget to infrastructure development projects. Overall, project finance is well established as an economic tool in Mexico, particularly in the electricity, oil, and gas industries. Evidence suggests that for the Mexican government, has chosen the Build–Operate–Transfer or “BOT” as a preferred way to finance the necessary creation of infrastructure in Mexico.
Private sector sponsors of PPPs in Mexico typically include, on the sponsors’ side, influential organizations from Europe, the US, and Japan, though – surprisingly, perhaps – South Korean companies also feature prominently in PPPs in Mexico. Lenders typically come from major Europe-based international commercial banks – with France and Spain exceptionally well represented – as well as Asian banks, mainly from Japan and South Korea.
Mexico is without a doubt one of the leading car producers in the world. The car industry is under an electrification transformation, which will require lithium for batteries, and the proximity to the United States (as one of the leading car markets in the world) makes Mexico the strategic place to invest in lithium mining industry.
Today, Mexico is unquestionably one of the most exciting investment markets in the world as we said, and the lithium project is and will be, understandably, coming under the spotlight of many major investment organizations that seek to make the most of the opportunities the country has to offer, including PPPs in Mexico.
For any comments, doubts, suggestions, please do not hesitate to let us know, you may contact Diego Latorre (email@example.com) or Sean McCoy (firstname.lastname@example.org).
 Dear reader, please be advised that this piece is not, and shall not be construed as a legal advice, and it is not a comprehensive analysis of the subject matter referred to above.