Client Alerts

Smoke before the fire? – Recent proposed measures across Latin America may ring alarm bells with some foreign investors

Volterra Fietta Client Alert
11 October 2021

In the last couple of weeks, a number of major Latin American Governments have proposed measures that would potentially, if implemented, nationalise or diminish the value of foreign investments across a range of industries.  In particular:  (a) the Peruvian government has threatened to nationalise Peru’s largest gas field unless the consortium operating it agrees to pay higher taxes; (b) Chile’s Congress proposed a pensions withdrawal bill that would force insurance companies to shell out as much as USD 5,500 per pensioner, on request, in manner that could liquidate the relevant funds; and (c) Mexico proposed a constitutional reform that would grant the State-owned energy utility company (the “CFE”) more than half of the electricity market and reserve lithium extraction solely to the State.

If they come into effect, these measures could give rise to significant investment disputes with foreign investors across a range of industries, of which States must be aware.  Foreign investors who may be impacted by such measures – as well as foreign investors generally – may benefit from appropriate legal advice to protect, prophylactically, their interests.


Peru’s proposed forced “renegotiation” of distribution of benefits with gas companies

On 26 September 2021, Peru’s Prime Minister, Mr Guido Bellido (who resigned on Wednesday), issued a tweet summoning the Consortium in charge of the Camisea gas project to renegotiate the contract it signed with the Peruvian State to exploit the gas reserve located in the Peruvian Andes.  The deposit produces the gas used to generate at least 40% of Peru’s electricity.  Mr Bellido warned that should other companies refuse to agree to more favourable terms for the Government, they might face nationalisation.

It is unclear whether, following Mr Bellido’s resignation, the Government will still pursue these policy decisions.


Chilean congress takes a swipe at Pension Funds

On 28 September, as a first step in the Chilean legislative process, the Chilean Chamber of Deputies passed a constitutional reform that would enable any pensioner that has entered into a “Renta Vitalicia” insurance contract with authorised insurers to request an advance payment of up to approximately USD 5,500.  Chile’s Financial Markets Commission has warned that the advance payments could lead to liquidity problems or potentially insolvency of 7 out of 15 companies present in the market.  The Chilean-American Chamber of Commerce warned that the measure constituted a “manifest indication of the weakening of [Chile’s] institutional framework”.

Local press estimates that the potential losses for insurance companies could reach as much as USD 2.3 billion.  There are almost 700,000 Renta Vitalicia contracts currently in force in Chile.

The bill has now moved on to the Chilean Senate for review and final approval.


Mexico continues its efforts to empower the CFE and nationalise “strategic” resources

Since President López Obrador took power in late 2018, he has made energy nationalism a priority.  On 30 September 2021, President López Obrador’s administration took a new and calculated step to revert business-friendly reforms adopted by previous administration in the energy sector in a manner that, in some interpretations, might prevent amparo review under Mexican law.

In particular, the Mexican government submitted a proposed constitutional reform to the Mexican Congress that would grant to the CFE control over 54% of Mexico’s electricity market.  The reform would also entitle the CFE to determine the procedures that private investors would need to follow to participate in the remaining 46% market share.  If passed, the reform would immediately:  (a) put an end to the “economic efficiency” principle, which ensured that lower-cost electricity was dispatched first in Mexico’s National Electric System; (b) result in the cancellation of power generation permits, power purchase agreements and “Clean Energy Certificates”; (c) revoke self-supply generation permits granted in contravention of the law; and (d) suppress Mexico’s independent market regulator (the Energy Regulatory Commission).

The reform also proposes that the Mexican State would have the exclusive right to develop Mexico’s lithium reserves.  President López Obrador warned that current lithium concessions will be cancelled if the concessionaires fail to “prove they have done exploration work and have the capacity to invest and extract lithium”.  However, the strict terms of the proposed reform would permit the cancellation of any mining permits relating to projects that have not yet progressed to the exploration phase.


Implications under public international law

These series of proposed measures may, if enacted, trigger disputes between investors and Chile, Mexico and Peru.  In particular, investors might bring claims under numerous bilateral investment treaties and free trade agreements with investment chapters that these countries have signed.

In addition, foreign investors in these and other LATAM countries may continuously consider, on a proactive basis, the optimal structuring of their investments to protect against these and similar measures.  Sovereign States are also well-advised to consider the rights of investors under international law when seeking to reform industries and sectors as Chile, Mexico and Peru are proposing.


For further information, please contact Robert Volterra ( or Gunjan Sharma (