(Repeating to additional subscribers)
By Gabriel Stargardter
EMILIANO ZAPATA, Mexico, June 18 When foreign
investors begin to pour into Mexico's overhauled energy sector
in the coming months, they will face a potent force well-known
to miners: Mexico's ejidos, or rural landowner groups.
The product of revolutionary land reform - almost a century
ago - that redistributed more than 100 million hectares from
large landowners to small farming groups, the ejidos control
surface rights to large swaths of Mexico.
The ejidos are often poor but they can be powerful:
machete-wielding landowners shuttered government plans for a new
Mexico City airport in 2002.
For years, foreign companies have owned concessions to mine
metals in Mexico, leading them into delicate negotiations with
the ejidos, who often block mines for months when they feel they
are getting a raw deal.
But until last year, when Congress approved a reform to end
state oil giant Pemex's 75-year monopoly, foreign
firms were blocked from exploiting the oil and gas reserves of
the world's 10th largest oil producer.
Now, they too will have to get along with the ejidos,
forging long-term relationships that will help define the
success of Mexico's efforts to boost economic growth and lure
new investment to stem a decade of declining crude oil output.
"If you don't manage it well, this can be a real challenge,"
said Gustavo Nieves, a project manager for Mexican oil services
company Grupo Diavaz, which operates on behalf of Pemex in the
Chicontepec region in central Mexico and pumps up to 13,000
barrels of crude a day. "It can get really complicated."
Leftist lawmakers and agrarian groups, many of whom opposed
the reform, have raised the temperature for foreign investors by
accusing them of planning land grabs.
"This is the total destruction of property in this country
in the service of international companies," said Labor Party
Senator Manuel Bartlett.
Unlike in Mexico, where the state owns all oil and gas in
the ground, U.S. mineral rights are privately owned. Such
clearly defined land rights are one of the reasons some believe
the U.S. shale oil and gas revolution has been so successful,
and will be hard to replicate overseas.
Oil majors like BP and Exxon Mobil have been
quietly building up their presence in Mexico City, but they have
not disclosed specific investment plans. Last month Chevron
said it saw "tremendous opportunity" in Latin America's
But, experts say, investors in Mexico's energy sector face
"Who do we deal with, what kinds of arrangement can we make,
and third, can they be enforced and will they be respected?"
said Jim Rice, a Houston energy lawyer at global law firm Sidley
The Mexican government is trying to bring some clarity to
these questions. Under the terms of the reform, whose fine print
is still being hashed out in Congress, surface rights holders
will be incentivized to reach a quick and amicable agreement at
a fair price or face the prospect of expropriation.
But the previous experience of miners suggests the reality
is far more complicated, with costly shutdowns a fact of life.
"The land tenancy issues are the biggest piece of
uncertainty you have to deal with as a foreign mining company
and I would foresee energy companies having the same issue in
the future," said Michael Harvey, director of corporate affairs
at Canadian gold miner Goldcorp.
The company's Los Filos mine was blocked by an ejido for
more than a month earlier this year, and it has faced weeks of
legal uncertainty at its giant Penasquito mine.
In 2012, Canadian silver miner Excellon saw its
share price fall by nearly 50 percent during a 99-day blockade
at its La Platosa mine in northern Mexico.
Miners complain of outlandish demands.
In the case of Excellon, it said the ejido wanted a
concession to truck silver from the mine but was unwilling to
insure the cargo, a charge the ejido disputes.
Harvey recommended engaging landowners from the outset and
dealing with them directly rather than through middlemen.
OIL AND TOIL
Experts say much of the initial investment resulting from
the energy reform will head to areas like Chicontepec, which
holds about a third of Mexico's reserves and where mid-size
companies can forge relationships with Pemex or operate alone.
Emiliano Zapata, a sweltering citrus-growing village in the
Chicontepec oil basin, is one of the 3,631 ejidos in the eastern
state of Veracruz. It has the highest number of landowner groups
in Mexico, making up 40 percent of the area of the state.
As such, it is a testing ground for whether foreign oil
companies can make nice with local landowner groups.
On March 2, an eight-inch Pemex oil pipe burst into a stream
that provides water to the village, which is named after a
revolutionary peasant leader who fought for land redistribution.
Pemex took responsibility for the leak, but months passed
until the stream was this week finally declared clean. During
that time, residents relied on tanked-in water supplies, and
they said up to eight days would pass without a delivery.
Exasperated by the lack of water and a perception they were
saddled with all the costs of oil extraction, but saw none of
the benefits, members of the 2,000-strong ejido blocked the main
road into the oil-producing zone.
"The government's slogan is that the oil belongs to us
Mexicans," said laborer Josue Sanchez. "But us Mexicans, who
live the reality, haven't seen half a peso of that wealth."
Faced with the prospect of more investors arriving, locals
in an area where half the population lives on food handouts, say
they are left with few options to make themselves heard.
"We're looking at the prospect of blockades, because nobody
wants to take responsibility for these problems," said
Gumercindo Gonzalez, the head of the ejido.
A Pemex spokesperson said the company took care of the leak
in Emiliano Zapata, but added that a lot of ejido complaints
lacked substance, and that the groups were usually looking for
According to Gustavo Hernandez, the head of Pemex
exploration and production, Mexico's extractive industries
generally enjoy a fruitful relationship with the ejidos.
"The ejidos collaborate closely with the mining industry,
with the oil industry, with Pemex, and with the energy companies
working there extracting gas," he said.
But the experience of energy firms already operating in
Mexico provides a different perspective.
"For foreign companies it's a real nightmare," said the
security manager of an international oil services firm operating
in the state of Tabasco who declined to be identified because he
wasn't authorized to speak to the media.
He spoke of widespread oil theft and impromptu blockades.
"You can't blame them really," he added. "(Oil services
companies) make all these promises, 'Oh yeah, we'll build you a
new school, we'll build you a new clinic.' But a lot of the time
it doesn't really come to fruition."
(Additional reporting by David Alire Garcia; Editing by Simon
Gardner and Martin Howell)