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Water scarcity in Latin America
Water resource issues have impacted business operations in multiple locations across Latin American. In addition to the major drought affecting the power supply in Brazil and water-based transportation of key exports in Argentina, water-related issues have triggered a business occupation in Mexico, growing pushback against extractive projects in Ecuador, and legislative moves increasing contract alteration risk in Chile, with other countries also affected.
Although Latin America possesses roughly 30% of the world's freshwater resources, mismanagement, overexploitation, pollution, and climate change-related impacts are increasing the region's water insecurity. Of the 20 largest Latin American cities, 16 now face water-related stress. Overall, a growing and persisting focus on water supply is likely across the region, leaving companies facing wider and persisting water-related operational challenges.
Widening protests against water-intensive manufacturing projects in Mexico threaten contract alteration risks.
In Puebla state, Mexico, around 100 people from the so-called 'Peoples' Front for Water Defence' (Frente de Pueblos en Defensa del Agua) broke into a private water-bottling plant on 8 August, damaging and occupying the premises, and physically assaulting security guards. The incident took place after a four-month-long blockade that forced the plant to cease operations in March 2021. Protesters claim the occupation will be permanent. Days before, another grouping of local communities from Puebla urged the National Water Commission (Comisión Nacional del Agua: CONAGUA) to revoke water use permits for at least five European and US manufacturing and agribusiness companies in the state. Despite private sector calls for the authorities to recover control of the water-bottling plant, the government has shown no sign that it will deploy security forces to achieve this. Based on an April 2020 precedent, in which local community's concerns over water scarcity resulted in the cancellation of a US company's brewing project in Baja California state after a referendum, the federal government appears more likely to propose an ad hoc consultation process to determine the future of the plant. This would likely incentivise further protests and increase the risk of other communities escalating actions against companies operating water-intensive businesses through blockades and take-over attempts, seeking eventual project cancellations.
Environmental and community activism is increasing legal challenges and protest risks for extractive projects.
On 6 August, the Sucumbios department municipal court in Ecuador issued a ruling in favor of five girls who, supported by indigenous organizations, brought a lawsuit against the Ministries of Mining and Non-renewable Natural Resources and the Ministry of Water and the Environment. Their case claimed that their human right to access clean water had been violated by pollution from oil and gas projects. The ruling ordered that all gas burners near populated areas be disabled within 18 months to preserve water quality. Indigenous organizations across the region with significant mobilization capacity have increased their focus on the defense of water resources.
Community action against water pollution, particularly that caused by mining, is increasing. Peru's government organization dedicated to recording social conflicts, the Defensoría del Pueblo (People's Defence), recorded that, in June 2021, 65% of social conflicts registered focused on environmental issues, with water pollution a major trigger. Activists opposing fracking in Colombia are campaigning for increased community consultation on fracking projects planned for the Magdalena Medio region of Antioquia department. Indigenous and social organizations seeking to combat water and other potential pollution are also gathering support from activists worldwide, increasing pressure on companies from consumers. These cases indicate the growing trend towards water-related activism across Latin America affecting extractive projects, which is increasing protest, legal, and reputational risks for extractive companies over water resources.
Water scarcity is driving regulatory changes in Chile, raising risks of project cancellations or expropriation.
After a decade of National Congressional discussions, Chile's Senate approved a water code bill on 4 August. Its passage was prompted by severe water scarcity caused by a lack of rainfall. The bill classes water as a national good for public use, prioritising its use for consumption and sanitation. Until now, water rights in Chile have been private and permanent, while the proposed regulation establishes 20- or 30-year renewable concessions for new water rights. Currently, at the lower chamber of the National Congress for final discussion, the bill is likely to be approved and become operational within 2021. Under the water code, holders of water rights, particularly in the agriculture sector (which uses approximately 80% of available water), mining, and energy, would face tougher sanctions for misuse, and contract cancellation for non-use or speculation. Although existing holders would retain ownership indefinitely, expropriation of rights would be allowed as a last resort if there were severe water shortages for consumption, healthcare, or sanitation, and no more rights were available to purchase. The classification of water as a public good is also likely to be enshrined in the new constitution currently being drafted, potentially adding further restrictions.
Indicators of changing risk environment
- Rising water scarcity across Mexico encourages criminal groups to seek control of water resources, increasing the risk of extortion for the agribusiness, extractive, and manufacturing sectors.
- Ecuador's government seeks to expand extractive industries in protected areas without prioritising community consultation, leading to wider, larger, and more persistent protests against the sector.
- Chile passes its new water code and includes further restrictive provisions for water rights in its new constitution, hindering water-intensive business activity and potentially encouraging similar legislative moves elsewhere.
- The Mexican government arranges negotiations between the occupying communities and the affected water-bottling company, reducing media focus and permitting an eventual compromise, reducing spillover risks affecting other firms.
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