JDsupra | 21 April 2021
Indigenous peoples’ rights and large-scale development projects: Avoiding unexpected risks in the Americas
by Orlando Cabrera C. - Hogan Lovells
Many countries across the Americas are home to large indigenous populations: Mexico has around 25.7 million people, Guatemala, 6.5 million, Bolivia 5.4 million, the US 4.3 million and Canada, 1.7 million. Such indigenous populations often live in territories that are earmarked for construction projects, which may lead to inevitable friction with state governments and subsequently, developers and investors.
The construction of large-scale construction projects such as hydroelectric power stations, electric pylons, dams, highways, pipelines, cement factories, and various extractive industries requires the acquisition, lease or transfer of land and/or natural resources to facilitate commercial investment, but such land may be inhabited or designated to indigenous communities.
Further, in many countries, some indigenous communities enjoy special protective rights over their land and/or natural resources under both domestic and international law. Perhaps most integral to indigenous populations’ rights is the United Nations Declaration on the Rights of Indigenous Peoples (resolution 61/295) (the “Declaration“). In particular, Article 19 of the Declaration provides that
“States shall consult and cooperate in good faith with the indigenous peoples concerned through their own representative institutions in order to obtain their free, prior and informed consent before adopting and implementing legislative or administrative measures that may affect them“.
Article 32 of the Declaration further provides that:
“States shall consult and cooperate in good faith with the indigenous peoples concerned through their own representative institutions in order to obtain their free and informed consent prior to the approval of any project affecting their lands or territories and other resources, particularly in connection with the development, utilization or exploitation of mineral, water or other resources […] States shall provide effective mechanisms for just and fair redress for any such activities, and 24 appropriate measures shall be taken to mitigate adverse environmental, economic, social, cultural or spiritual impact.”
The Declaration therefore poses a considerable risk of causing delay and disruption to construction and engineering projects in the Americas, with a further resulting risk to international investment in those projects and territories.
To minimize the risk of that delay and disruption, and in order not to compromise international investment, developers should be aware of, and ensure compliance with, the relevant domestic and supranational regulatory frameworks that affect the rights of indigenous populations. Such frameworks (and other legislation) implemented in Panama and Mexico to protect the rights of certain indigenous communities, and their subsequent impact on the development and construction of infrastructure projects, are described below.
Preferential Access to Natural Resources
There has been regular friction between Panama’s indigenous communities, in particular the Ngöbe Buglé, and the Panamanian government since the discovery of Panama’s hydroelectrical potential in the 1970s. In 1997, as a consequence of significant political pressure from the Ngöbe Buglé, the government passed Law 10, which established the Comarca Ngöbe Buglé, a semi-autonomous region in which the community were, for example permitted to elect their own officials, (referred to below as the “Shire“, being the English translation of “Comarca”). Notably, under Article 10 of Law 10, the Ngöbe Buglé were given preferential access to natural resources:
“The sale of private estates, as well as existing improvements within the Shire, may be carried out as long as it is offered as the first option to the Ngöbe-Buglé Shire. . . . If this option right is not used and the transaction is perfected, the offeror will be empowered to sell to third parties, but for a price not lower than that offered to the Shire […] (emphasis added).
Only land that had been privately-held before 1997 could be sold to private parties.
In Álvarez y Marín Corporación S.A v Panama, an ICSID Tribunal considered a developers’ requirement to comply with the Ngöbe Buglé’s entitlements to preferential access and Law 10 and other domestic protections more generally.
In 2009, a Costa Rican developer entered into an agreement for the acquisition of four private estates in Panama for the purpose of building an ecotourist project. The acquisition was structured so that a special purpose vehicle, Desarrollo Ecoturístico Cañaveral, S.A. (“DECSA“), would purchase the estates from the relevant sellers, with the developer then buying shares in DECSA to the extent it would be the de facto owner of the estates.
Pursuant to Article 10 of Law 10, the owners of the four private estates were first required to offer their land to the Shire, but if the Shire rejected the opportunity to make a purchase they could then sell their estates to a third party, but for a price not lower than the price offered to the Shire.
In the event, and despite the sellers and developer’s obligation to comply with Law 10, the estates were offered to the Shire, and later following the Shire’s rejection of the sales, DECSA, at the following prices:
|Estate Number||Price offered to the Shire (US $)||Price offered to DECSA (US $)|
Following the sale of the four estates to DECSA, the developer took possession of the land and hired local personnel to set fences and to survey the lands. However, certain leaders of the Shire publicly cast doubt on the lawfulness of the land acquisition. The media echoed this news., which led to the government conducting investigations into the sale of the estates, culminating in a report which concluded that there were irregularities in the acquisition process. The report provoked a wave of indignation among the Ngöbe Buglé, and the occupation of the properties.
Alvarez y Marin subsequently issued proceedings, seeking to enforce their rights as investors through ICSID arbitration against Panama under the Central America-Panama Free Trade Agreement and the Panama-Netherlands Bilateral Investment Treaty. In particular, the developer argued that the government report frustrated its project, and deprived the investment of any value.
The Tribunal found that the four estates were located within the Shire, and further that their acquisition did not comply with Article 10 of Law 10. The estates were clearly offered to the Shire at a higher price than the price offered to DECSA. The Tribunal found that the developer’s failure to comply with Law 10 was so grave that the foreign investors lost the international protection granted by investment treaties.
The decision in Alvarez Marin demonstrates the need for investors to obtain specialist advice to ensure awareness of and compliance with even the most basic of local laws; in this case, the developers should have been aware that the price it paid for the four estates could not have been lower than the price offered to the Shire . The failure to obtain proper domestic advice creates unsurmountable risks and even severe financial loss.
In addition to signatories to the Declaration’s obligation to obtain the express consent of any indigenous communities prior to the approval of any development project that would affect that communities’ lands or territories, various states have also implemented domestic legislation requiring states to engage in consultation with indigenous communities prior to the commencement of projects too.
The Second Chamber of the Mexican Supreme Court established that the right to an indigenous consultation is a fundamental prerogative to safeguard the free determination of communities, and their cultural rights. The Chamber found the consultation necessary when certain situations have a significant impact on indigenous groups, including:
Elsewhere, indigenous communities’ right to consultation is enshrined in various other international and national legislation, including:
Although the Hydrocarbons Law of Mexico and Electric Industry Law of Mexico were both only passed in 2014, Mexico had already entered into international treaties which provided for indigenous communities’ rights of consultation, and international developers were required to be mindful of such treaties. Such requirements led to Dutch pension fund manager PGGM’s abandonment of an opportunity to invest in the Eólica del Sur wind power project in Oaxaca, Mexico after several years of delays caused by community resistance, including due to a lack of consultation with the indigenous population. PGGM subsequently withdrew €250 million from the project.
Although the Eólica del Sur project has now been completed, PGGM’s withdrawn investment illustrates the risks posed by a developer’s non-compliance with legislation governing indigenous communities’ rights; such legislation should not be underestimated.
It is clear from the above two examples that developers should be mindful of indigenous communities’ rights when planning construction projects in the Americas. To avoid or mitigate risks, developers should consider whether a project may engage indigenous people’s rights at the outset of development, and whether such communities are entitled to special protective rights: do they have preferential access to natural resources? Should they be consulted in advance of the project? Will the state agency responsible for the consultation conclude the process in a timely manner? Developers should further be aware of who should carry out any indigenous consultation and who their counterpart will be. Further, it is important to consider the scope of any force majeure clause, particularly with respect to the specified list of events said be outside a developer’s control, for example acts or omissions of the state agency responsible for the consultation. In any case, the best advice for a developer is to anticipate risks and understand the international and national framework governing a project.
 288, 290
 296, 309-314, 326, 330, 334
 Renewables Now, “Dutch pension fund quits much-delayed 396-MW wind project in Mexico” https://renewablesnow.com/news/dutch-pension-fund-quits-much-delayed-396-mw-wind-project-in-mexico-report-523075/