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Practical issues for water users in Mexico
Practical Law UK Articles 3-522-0118 (Approx. 9 pages)
Practical issues for water users in Mexico
by Juan Francisco Torres Landa, M Jorge Yanez V, Brenda Rogel and Jeanett Trad, Barrera, Siqueiros y Torres Landa, SC
| Law stated as at 01 Oct 2012 • Mexico |
This article examines water rights in Mexico, the need for reliable systems to monitor water use and to dis-incentivise titleholders from holding large volumes of idle water. It also discusses the monitoring devices used by the National Water Commission of Mexico (CONAGUA), the rights and duties of titleholders and the sanctions when duties are not paid.
A framework for water management
Under Mexico's federal constitution, every person has the right to clean water for personal and domestic consumption in a sufficient, safe, acceptable and affordable manner (Decree amending Paragraph Five and adding a Paragraph Six to Article 4 of the Political Constitution of the United Mexican States published in the Federal Official Gazette on 8 February 2012).
However, there exists a significant mismatch between the distribution of Mexico's water and its population and economic activity. The country's dry and semi-dry zones have just 31% of the renewable water but are home to 77% of the population and most of the economic, social and political activity, including 87% of GNP (The Hydric Challenge in Mexico report for the World Water Forum in Marseille 2012). This mismatch makes formal water management a priority: the budget for water is approximately 60% of the total environmental budget in Mexico.
The legal framework for water management in Mexico was established in the National Water Law of 1992 (Water Law), which states that the management of the use of the nation's water or the right to discharge wastewater is to be carried out through the National Water Commission of Mexico (CONAGUA), a decentralised agency of the Ministry of the Environment and Natural Resources created in 1989 to manage and preserve Mexico's water resources (Decree published in the Federal Official Gazette 16 January 1989).
Creating a culture of compliance
In 2008, the federal government established the National Hydric Program (NHP) (Decree approving the National Hydric Program 2007-2012 published in the Federal Official Gazette on 30 December 2008). The NHP sets out eight objectives to achieve the sustainable management of water and strategies towards achieving each objective.
Some of the objectives relate to investment and scientific development, but the eighth objective is aimed at creating a culture of paying duties and complying with the legal framework for water management. This objective presents significant practical challenges, including:
- Building a compliance culture around fiscal and administrative obligations.
- Maintaining an up-to-date register of water users.
- Determining the actual volume of water being used and exploited.
- Designing and implementing fiscal initiatives and collection systems that favour efficient water use.
The strategies set out in the NHP for achieving the eighth objective include:
- Getting an accurate picture of actual water consumption.
- Tackling under-declaration and avoidance of duties on water consumption.
- Recovering idle volume (that is, water being kept unused).
This article looks at the progress made in following these three strategies towards achieving the eighth objective, against the political background of promoting water efficiency and preventing overexploitation.
Getting an accurate picture of actual consumption
To properly administer and distribute water resources, CONAGUA needs to reconcile the water consumption declared by titleholders to water concessions (that is, individuals or entities to whom CONAGUA has granted the right to exploit water resources) with actual volume exploited.
Water rights in Mexico are concentrated in just a few hands: the rights to exploit 80% of the total water volume covered under water concessions granted for industrial use are held by approximately 6% of the titleholders to such concessions (Presentation of the CONAGUA on Public Policies for Efficient Use and Water Saving: Towards an Efficient Regulation for the Hydric Sector in Mexico II (September 2010)).
These titleholders appeared to be keeping large volumes of idle water that could have been applied in other activities to generate more social benefit. Between 2007 and 2010, titleholders declared the exploitation of an average of just 33% of the total volume covered under water concessions for industrial use (Economic Instruments for Efficient Hydric Management and Water Sustainability in the Medium and Long Term (2012)).
CONAGUA needed to establish a reliable system to monitor actual use, and a system to dis-incentivise titleholders from holding large volumes of idle water.
Monitoring devices installed for largest titleholders under pilot scheme
In 2011, CONAGUA set up a voluntary pilot scheme to install electronic measuring devices to the largest water-consumption titleholders. The scheme uses satellite data to accurately monitor water consumption volumes exploited by titleholders.
In the short term, accurate recording of actual water consumption volumes makes it possible to identify instances where titleholders are under-declaring their use, and impose appropriate sanctions. Titleholders of water concessions must duties for the use of water resources (sections 222 and 223, Duties Law).
However, it also has wider social benefits in the medium and long term, permitting monitoring and evaluation of levels of aquifers (that is, underground layers of rock or unconsolidated materials from which groundwater can be usefully extracted).
Burden of monitoring use shifted to titleholders
Following the pilot scheme, the Duties Law was amended to shift the burden of installing measurement devices from CONAGUA to the titleholders (Decree amending and adding different provisions to the federal Duties Law published in the Federal Official Gazette on 12 December 2011).
It is now the responsibility of the titleholder to do one of the following:
- Acquire and install a device complying with regulations issued by CONAGUA.
- Preserve an existing measurement device already installed, if it complies with the regulations.
In all instances, titleholders must regularly monitor the records of the measurement device and calculate the corresponding duties on the use of water resources.
There is also provision for an alternative method of measurement online, but procedures for this method have not yet been issued.
Electronic declaration and payment system introduced
For duties purposes, Mexico is divided into nine regions based on availability of water resources. Higher duties are applicable in those regions (Central Mexico and North Mexico) where fewer water resources are available. Duties payable on water consumption are due on a quarterly basis, before the last business day of January, April, July and October of each calendar year.
CONAGUA has introduced an electronic declaration and payment system, known as "Declar@gua" (section II.2.8.1.2, Miscellaneous Tax Resolution of 2012 published in the Federal Official Gazette on 28 December 2011).
This system enables CONAGUA to check the water consumption declared by titleholders of water concessions against that measured by satellite. In practice, this should reduce or eliminate the opportunity for titleholders to save on duties by under-declaring their water use.
The system is voluntary at present but it is likely to become mandatory in the near future.
Tackling under-declaration and avoidance of duties
During the last six years, CONAGUA has intensified its efforts to identify instances where water use is being under-declared and increase collection of duties on water consumption.
Under the NHP, a collection goal was set for duties of MXN58 billion. In 2012, CONAGUA's target is to collect MXN12.5 billion.
CONAGUA has power to estimate duties based on presumptive use
CONAGUA has the authority to estimate duties owed based on the determination of a presumptive water consumption volume in certain circumstances, in addition to any other applicable fines or sanctions (sections 228 and 229, Duties Law).
The circumstances in which a presumptive water consumption volume can be used to estimate duties owed include where:
- A measurement device has not been installed or is not operational.
- The security seal installed on a measurement device has been broken or tampered with.
- The titleholder has not paid duties or has failed to file declarations when due.
- The titleholder has not allowed CONAGUA to carry out an investigation.
- The titleholder has not kept proper records.
- Hydraulic works have been installed or pumping equipment modified without proper authorisation.
- The titleholder has exploited water resources not covered by the water concession.
Practical steps to avoid an estimate of owed duties
A number of practical steps can be taken by titleholders to avoid an investigation by CONAGUA and a presumptive determination of duties owed (sections 228 and 229, Duties Law). These steps include:
- Asking CONAGUA to install a measurement device and maintaining or acquiring an appropriate device until one is installed.
- Monitoring the operation of the device, and promptly notifying CONAGUA of breakdowns, alternations or mismatches (mandatory within 30 business days).
- Attending to any repairs promptly. Initially duties will be calculated based on average usage but if a broken device is not repaired or replaced within three months, duties are calculated based on total volume granted under the concession.
- Notifying CONAGUA of maintenance works.
- Being consistent. For the CONAGUA, differences between logbooks and duty declarations result in the conclusion that duty declarations are not reliable.
- Fulfil all reporting obligations properly and promptly; one single payment declaration is required to cover all the sources on a premises and a separate brief must be submitted specifying the water concessions, availability region, water consumption volume, tariff and paid amount.
Calculation of owed duties and presumptive use
CONAGUA can use information from a variety of sources to determine presumptive use and calculate duties owed, in addition to information obtained by CONAGUA in the course of an investigation (sections 236-A and 236-A-1, Duties Law). The information includes:
- Total volume covered under the water concession.
- Volumes recorded or declared.
- Volume that could be exploited by the titleholders (based on a statutory formula).
- Information obtained through any indirect method of economic research.
- Any other information obtained by the CONAGUA that may provide guidance on the actual water consumption levels.
If the total volume covered under the water concession is less than the volume resulting from the information or documentation revealed while CONAGUA is conducting an investigation, the higher volume must be used in the presumptive determination of owed duties.
Sanctions include immediate cessation of water use
Where duties for one or more quarters have not been paid in full by titleholders of water concessions for industrial use, CONAGUA can order the immediate cessation of water use (section 29bis 2, Water Law).
CONAGUA will allow ten business days to evidence the corresponding payment or relevant clarifications, otherwise the cessation of water use will be ordered until the corresponding duties are paid.
The immediate cessation of water use can be ordered in addition to other administrative and tax sanctions, which include suspending the water concession and closing the relevant supply source.
Redistributing unused water to increase social benefit
CONAGUA requires water concession titleholders to pay for the opportunity cost of maintaining an idle volume, to encourage more efficient distribution of water resources to those who need them.
Use it or lose it
If a titleholder does not exploit all or part of the volume of water covered by a concession for two consecutive years, CONAGUA can cancel all or part of the rights granted through a concession unless an exception applies (section 29bis 3, Water Law).
To avoid losing their concessions, titleholders can take a number of steps, including:
- Paying a non-cancellation guarantee fee in relation to the idle volume.
- Implementing water saving infrastructure.
Paying the price for idle volume
The concept of the non-cancellation guarantee fee has existed since 2004, but it did not become an enforceable mechanism to prevent cancellation of water rights until 2011 (Reglamento para la determinación y pago de la cuota de garantía de no caducidad de derechos de aguas nacionales, Federal Official Gazette, 27 May 2011 (the regulations) and Decree whereby the Ministry of Treasure authorizes to the CONAGUA the establishment of non-cancellation guaranty fees, Federal Official Gazette, 2 August 2011).
Under the regulations, titleholders who have not used water rights during a longer period than two years were required to pay a non-cancellation guarantee fee before the end of January 2012 to avoid cancellation of their rights.
The fee for preserving rights for 2011 and 2012 was calculated based on consumption during 2009 and 2010. For 2013 and 2014, titleholders must now re-evaluate their position and must either pay a new guarantee fee based on the consumption during 2011 and 2012 or secure an interruption certificate before the 2012 calendar year ends.
To avoid cancellation, titleholders must notify CONAGUA of their intention to pay the fee at least 15 business days before the end of the two year period and make the payment within the 15 business days following the end of that period. A two year period can be interrupted at any point by the payment of a new fee.
It is not possible to pay the fee in relation to only part of the idle volume: it must be paid for all unused water volume. In practice, this means that titleholders may need to resign to a portion of the volume originally granted, facilitating redistribution. Payment of the fee is also required for the transfer of the concession title.
Contributor details
Juan Francisco Torres Landa
Barrera, Siqueiros y Torres Landa, SC
)
T +52 55 5091 0157
F +52 55 5091 0123
E [email protected]
W www.bstl.com.mx
Qualified. Mexico, 1988
Areas of practice. Civil commercial and corporate law; project financing; M&A; foreign trade; arbitration; immigration; environment; economic competition (anti-trust); mining; taxation for non-residents; telecommunications.
Recent transactions
- Advising a foreign company in multi-layer divestiture process of several business units in Mexico. Preparing due diligence, contract work and anti-trust clearance.
- Advising Pro Futuro in a bid for ING Pension Fund in a multi-million dollar transaction.
- Performing corporate reorganisation work for a multinational company to seek more efficient tax structures in multiple jurisdictions. Co-ordinating work in and outside of Mexico.
For more details of recent transactions, publications, and so on, see full PLC Which lawyer? profile here.
M Jorge Yanez V
Barrera, Siqueiros y Torres Landa, SC
)
T +52 55 5091 0165
F +52 55 5091 0123
E [email protected]
W www.bstl.com.mx
Qualified. Mexico, 1991
Areas of practice. M&A; project financing; foreign trade (anti-dumping research); environment; entertainment (regulation on games); immigration.
Recent transactions
- Advising a minerals company on acquisition of a sand and resins business.
- Corporate restructuring in Mexico of a German appliance company.
- Advising a leading French company in joint venture negotiations with a Mexican conglomerate.
- Lead counsel of one of the three top producers of poultry products in the US in anti-dumping investigations in Mexico.
- Advising a leading beverage and alcohol company in all matters related to water management in Mexico.
- Lead counsel for nationality and immigration matters for major transnational firms from diverse industries.
Brenda Rogel
Barrera, Siqueiros y Torres Landa, SC
)
T +52 55 5091 0165
F +52 55 5091 0123
E [email protected]
W www.bstl.com.mx
Qualified. Mexico, 2003
Areas of practice. Environment; health (Mexican official standards); consumer protection; entertainment (regulation on games and raffles).
Recent transactions
- Representing multinational companies in water litigation cases involving the payment of water consumption and wastewater discharge fees.
- Legal advice to a multinational company concerning the management, control and monitoring of wastewater discharges performed through irrigation of agricultural fields, alternatives to mitigate possible damages to the aquifer and impact to water quality supplied at urban areas.
- Legal advice for the installation of an iron and steel industry in Hidalgo, including environmental and real estate matters.
Jeanett Trad
Barrera, Siqueiros y Torres Landa, SC
)
T +52 55 5091 0165
F +52 55 5091 0123
E [email protected]
W www.bstl.com.mx
Qualified. Mexico, 2006
Areas of practice. Environment; climate change; health (Mexican official standards); consumer protection; entertainment (regulation on games and raffles).
Recent transactions
- Advising a US multinational company in the remediation of a long-term contaminated site. Considering the concentration of pollutants in soil and groundwater, the development of the remediation plan involved the implementation of experimental tests to determine the viability and advisability of using new technology and methodology to clean up soil and groundwater.
- Advising a leading French company in joint venture negotiations with a Mexican conglomerate regarding environmental matters.