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Sempra Impasse in Ensenada Raises Questions

Audio

Aired 3/4/11

The temporary shutdown of Sempra Energy's natural gas plant in Ensenada last month has raised many questions. Among them, the future of American investment in Mexican border states.

Sempra Energy has declared that it got its environmental permits to build a massive liquefied natural gas plant in 2003. But recently, Ensenada Mayor Enrique Pelayo Torres claimed the company was operating without the proper environmental and safety permits. He'd also accused Sempra of bribing Mexican officials.

So when Pelayo Torres was challenged by American reporters in Ensenada a couple of weeks ago, he defended his decision to temporarily shut down the plant.

"Their environmental impact study was for two tanks, and now they have four," said Pelayo Torres. "Besides, the permits given to them by my predecessors were definitely questionable."

The Sempra project in Ensenada has been controversial for years. Sempra representatives say the allegations are unfounded.

But regardless of the outcome, the episode is already sending a warning to U.S. investors.

"(It's a warning) whether you're talking about tourism markets, manufacturing or even personal investment," said Kenn Morris, president of Cross Border Business, a market analysis firm focused on the U.S.-Mexico border. "If the issue is that local governments and state governments really can't get their acts together to provide some sense of confidence on property in places like Baja California, then that will really stifle investment."

Morris added that many investors from both sides of the border are keeping a close eye on this case. Meanwhile, leaders in Baja and in other border states have made efforts to lure U.S. investment during the economic downturn.

Comments

Avatar for user 'neveslaw'

neveslaw | March 4, 2011 at 11:16 a.m. ― 3 years, 9 months ago

I listened to the Editor's Roundtable this morning and I felt you missed what is actually occurring. Have you ever wondered why Canada has such a vibrant economy and Mexico does not, especially in the Baja region. Every 6 years, Mexico's central government is completely changed. This fact, among others, creates uncertainty. Because of this, foreign investment has always been difficult although things have changed somewhat post NAFTA. Now take Sempra's case. Let's assume for the sake of argument that all the allegations of corruption are true. You have a completed multibillion dollar facility built by foreign capital of which, I understand, provides 50% of the LNG to Mexico. Is the appropriate remedy to shut down the facility? Is this an attempt to extract money from Sempra? After all the permits are issued, construction is completed and operations are underway, a politian of a small city cries foul and unilaterally attempts to stop operations. Such a situation could never occur in the US because of due process rights; and that is the rub with Mexico. Unfortunately, Mexico has a long history of this type of conduct which makes investing in that country problematic, although for some reason Japanese and Chinese entities do not seem to experience the same difficulty. If there is an issue regarding the issuance of any permits, it may be investigated, litigated and appropriate action taken if necessary. Sempra is a well-run S&P 500 company despite the bad press it receives. It will be interesting to see what Mexico City eventually does although it is doubtful any adverse action will be taken. If you want a good coastal enviromental story, you should research the proposed development plans for the area below Punta Colonett which is about 40 miles south of Ensenada.

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