TransCanada’s Mexico pipeline plans hit local resistance

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Faced with widespread opposition to pipeline plans in Canada and the U.S., TransCanada Corp. pinned its hopes for big new growth projects elsewhere: in Mexico.

The Calgary pipeline giant saw Mexico as an easier place to proceed with new developments.

It set plans to build $5-billion (U.S.) of new infrastructure that would aid the government's push to vastly expand its natural-gas network across the country.

TransCanada chief executive Russ Girling sang the praises of Mexico as a more straightforward place for his company to do business – at least from a regulatory point of view.

"Clearly, what we've found is the risk that we need to take in Mexico to participate in a large-scale infrastructure investment is far less," Mr. Girling said at his Calgary-based company's annual general meeting earlier this year.

Unfortunately for TransCanada, resistance to new pipeline projects is cropping up in the deserts, forests and mountains of Mexico – where the company is facing indigenous opposition, concerns about the environment and a government-directed process for consultation. TransCanada isn't the only target of those protests, but as one the biggest players in the push to build a new natural-gas pipeline network across Mexico, it has seen at least two of its projects zeroed in on.

The obstructions threaten TransCanada's sanguine outlook for near and longer-term corporate growth in Mexico, and suggest environmental and aboriginal antithesis regarding new pipeline projects goes beyond Canada and the United States.

"We here in the industry, the ones that are deeply involved in this, are very concerned and frustrated and worried about it," said lawyer Benjamin Torres-Barron, a partner at Baker & McKenzie, who heads the global firm's energy, mining and infrastructure practice in Mexico.

Rev. Javier Avila – a Jesuit priest who has worked on indigenous rights in Chihuahua state for almost three decades – said Mexico's state-owned utility company and TransCanada have both been ham-handed in the process to obtain permits and signatures from the indigenous Raramuri community that will be impacted by the company's natural-gas pipeline project in northwestern Mexico.

"The process is full of irregularities. This is a real mess," Father Avila said.

The project – the El Encino-Topolobampo pipeline near the U.S. border – was supposed to be completed in July. But TransCanada was forced to halt work last year when other indigenous communities took legal action to stop the conduit from crossing through what they describe as their native lands, according to human-rights groups. Now, TransCanada says completion is delayed to 2017 "due to right-of-way acquisition delays."

On the other side of the country – under the slogan "If Obama stopped TransCanada, why not you?" – more than two dozen indigenous communities in the mountain range crossing from the Caribbean coast into Mexico's central region have joined forces to oppose the company's Tuxpan-Tula natural-gas pipeline on safety and environmental grounds. TransCanada says its contractors have started preparation work only in areas where a government-led indigenous consultation process is not required, but the communities complain the company has begun construction before consulting them.

Like other midstream companies operating in Canada and the United States, TransCanada has faced pushback when it has tried to build new, high-volume oil pipelines. Its high-profile Keystone XL project to bring Canadian crude to the U.S. Gulf Coast was given a seminal rejection from U.S. President Barack Obama one year ago. And the National Energy Board review of the firm's proposed $15.7-billion Energy East line, to deliver 1.1 million barrels per day of crude from Alberta to eastern refineries and a New Brunswick export terminal, has been delayed this year due to environmental protests and concerns about the impartiality of the process.

In comparison to the $2.5-billion (Canadian) spent on TransCanada's unsuccessful Keystone XL bid, Mr. Girling said it costs about $5 million to put together a project bid in Mexico. "If we win, we get our permits. We work with landowners and we get into construction right away."

TransCanada has two decades of history in Mexico, where its business is focused on the transport of natural gas, not oil. The company said as new projects are built, it has worked hard to minimize the impact of construction on communities, to be sensitive to the cultural mosaic of the country, and to restore and protect the local flora and fauna. It increased its investments in Mexico even further in June, announcing it had entered into a joint venture with Sempra Energy to build, own and operate the $2.1-billion (U.S.) Sur de Texas-Tuxpan natural-gas pipeline. The project will be the most important gas pipeline project in the history of the giant Mexican state-owned utility company, the Comision Federal de Electricidad (CFE) – whose commitments underpin TransCanada's building work in Mexico.

The country has figured prominently in many of TransCanada's corporate moves. This month, the company announced that its previous plan to sell a minority interest in its natural-gas pipeline business in Mexico to help fund its $10.2-billion purchase of Columbia Pipeline Group Inc. was on ice, despite receiving "credible, binding" bids.

TransCanada is a key part of the Mexican government's dramatic energy reforms that will see the natural-gas market liberalized, a massive increase in imports from the United States and a push to use natural-gas power generation to boost the country's manufacturing competitiveness.

In the space of a couple of years, Mexico's natural-gas market will be completely transformed, moving away from the decades-old monopoly model and being fully integrated with the rest of the North American market, according to Adrian Lajous, a fellow at Columbia University's Center on Global Energy Policy, and a former director general of Pemex, the Mexican state-owned petroleum company.

This shift will require an investment of more than $16-billion between 2014-19 to address what Mr. Lajous said is a monumental lack of natural-gas pipeline infrastructure in Mexico.

As this building boom proceeds, a number of pipelines being constructed by U.S. and Mexican companies are facing some form of opposition. For instance, Mr. Lajous said the $50-million Tula Lateral Pipeline project being built by another Canadian company, Atco Ltd., is all but complete, but the last kilometre of the project remains unbuilt due to community concerns. In a statement, Atco said the pipeline's completion has been delayed after the discovery of an archeological find in part of the right of way.

"We are actively engaged with local groups to work on a path forward that respects the interests of all involved. We are also working with the government and local agencies on process and procedures that will allow projects to move forward while respecting the rights of landowners and the Mexican people," Atco said.

Mr. Lajous believes the indigenous opposition to natural-gas pipeline projects in Mexico is not on the same level as protests against pipelines in Canada and the United States. "You will see some hiccups on the way, but essentially those pipelines will go on stream."

But TransCanada has already seen some of the effects.

In 2012, the commission awarded the company the right to build the $1-billion El Encino-to-Topolobampo pipeline. However, last year a federal judge ordered TransCanada to stop construction work right after the indigenous Raramuri community of San Luis de Majimachi introduced a legal action against the company, said a report from CONTEC, a Chihuahua-based human-rights group that took part in the consultation process for the TransCanada project. Two other communities soon followed suit.

The indigenous communities argue TransCanada negotiated the right of way for the pipeline with landowners, but left small Raramuri communities outside the negotiation of the project – which is designed to move American gas from El Encino to the port of Topolobampo in the state of Sinaloa.

Remote Raramuri communities – known for their legendary long-distance runners and recent drug-cartel violence – have been fighting for legal rights in their traditional or ancestral territories for decades. Some have signed agreements with TransCanada. But according to CONTEC, some community members have safety concerns and fear environmental damage to ancestral lands – while others opposed the consultation process or what they describe as inadequate financial compensation offered by TransCanada and authorities.

In the meantime, TransCanada has now looked to another indigenous Raramuri community – in San Ignacio de Arareco in Chihuahua – as an alternate route for the completion of the project.

TransCanada and CFE have been trying to meet with the community to negotiate remuneration for the project, and for final community approval, according to the local office of the rural attorney and a state agency for human rights. TransCanada now says the El Encino-Topolobampo project, which was supposed to be completed this year, is at greater than "90-per-cent progress," with completion expected in 2017.

"One short section of the pipeline required a re-route due to some community concerns that became evident during an indigenous consultation that was carried out by government authorities," said Juan Carlos Hernandez Azuela, TransCanada's spokesman in Mexico.

"We have worked closely with the community to ensure they have a full understanding of the project and we anticipate being able to continue work on that section very soon."

Part of the issue is the government process required for such projects. Dwight Dyer, an independent political and security risk analyst focused on Mexico's energy sector, said firms such as TransCanada depend on the federal government to carry out proper consultations with indigenous communities.

"Although the federal government tells companies to begin construction, it is often the case that the government itself doesn't comply or organize [consultation] processes on time," said Mr. Dyer, adding companies often have to deal with upset indigenous communities that never had a say in the development of the project.

The government consultation process also plays a role in the case of TransCanada's Tuxpan-Tula project, on the other side of the country. Mexico's state-owned utility company awarded the contract to TransCanada in November, 2015.

The $500-million, 263-kilometre-long pipeline will move 886 million cubic feet per day of U.S. shale gas from Tuxpan, in the state of Veracruz on the east coast, to Tula de Allende north of Mexico City.

But the project is being opposed by representatives of 26 indigenous communities who will see the pipeline travel through their ancestral lands. The group – the Shingu Yamui council – has concerns ranging from the impact to the cloud forests and sacred sites around the community of Pahuatlan, to predictions of an increased number of landslides. Farmers are worried they won't be able to hold annual burns to kill plant diseases or prepare the land for next year's crops, according to the council.

According to the Mexican government, authorities are in the process of starting consultation with affected indigenous communities. However, the council said consultation should had been conducted prior of the approval of the project.

Mr. Lajous of Columbia University said this part of Mexico is an area where Pemex has had a strong presence in previous years, and local communities were used to cash dispersals when problems arose. "People became used to that."

The dispute over the pipeline has turned nasty. The council has clashed with the mayor of Pahuatlan, Arturo Hernandez Santos, a vocal supporter of the pipeline. Zenon Vargas, a representative with the Shingu Yamui council, said the Pahuatlan mayor – who wasn't available for an interview – doesn't respect the will of its aboriginal communities.

"We want to be respected," said Mr. Vargas.

The community never received information about the project, and people are upset the company has entered their lands to do measurements, and collect water and soil samples, without their consent, he added.

Last month, local federal Congressman Carlos Barragan Amador published a Facebook post that called for better community consultations on the project, and said the Pahuatlan mayor asked for a bribe to approve the right of way for the pipeline. Mr. Barragan also alleged TransCanada paid a bribe of two-million Mexican pesos, or just more than $100,000 (U.S.) to the mayor.

However, TransCanada said the charge is completely false. The company's spokesman in Mexico said TransCanada purchased a change in land-use permit and a construction licence from the municipality, as is required by municipal regulations.

"This process was not well-understood by a local politician and was unfortunately misinterpreted in the press," Mr. Hernandez said.